Pensions legal updates from Shoosmiths LLPhttps://www.shoosmiths.co.uk/rss/5690.aspxPensions legal updates from Shoosmiths LLPen-GBShoosmithshttps://www.shoosmiths.co.uk/-/media/shoosmiths/shoosmiths-rss-image.jpg?h=144&w=144Pensions legal updates from Shoosmiths LLPhttps://www.shoosmiths.co.uk/rss/5690.aspx60{CCDBEADC-638E-4B56-846E-C770DC71F2C4}https://www.shoosmiths.co.uk/client-resources/legal-updates/esg-and-investment-governance-for-pension-scheme-trustees.aspxESG and investment governance for pension scheme trusteesThe Pensions Regulator has updated its Investment Governance guidance for DC schemes to reflect recent changes in legislation, requiring trustees to set out their policies on environmental, social and governance (ESG) issues when making investment decisions.Fri, 19 Jul 2019 00:00:00 +0100<![CDATA[Suzanne Burrell Jenny Farrell ]]><![CDATA[The Pensions Regulator has updated its Investment Governance guidance for DC schemes to reflect recent changes in legislation, requiring trustees to set out their policies on environmental, social and governance (ESG) issues when making investment decisions.]]>{F8735690-25C4-4D3D-AED6-594531A8C257}https://www.shoosmiths.co.uk/client-resources/legal-updates/bic-v-burgess-pension-increases-were-not-validly-introduced.aspxBIC v Burgess: pension increases were not validly introducedThe Court of Appeal has overturned the High Court decision in Burgess v BIC, finding that increases to pensions in payment had not been validly introduced.Tue, 18 Jun 2019 00:00:00 +0100<![CDATA[Suzanne Burrell Jenny Farrell ]]><![CDATA[The Court of Appeal has overturned the High Court decision in Burgess v BIC, finding that increases to pensions in payment had not been validly introduced.]]>{6B4F3146-D088-470A-AA5B-845FFB6BBB23}https://www.shoosmiths.co.uk/client-resources/legal-updates/government-guidance-on-gmp-equalisation-and-conversion.aspxGovernment guidance on GMP equalisation and conversionJust before Easter (18 April 2019), the DWP published its ‘guidance on the use of the Guaranteed Minimum Pension (GMP) conversion legislation’.Tue, 07 May 2019 00:00:00 +0100<![CDATA[Suzanne Burrell Jenny Farrell ]]><![CDATA[Just before Easter (18 April 2019), the DWP published its ‘guidance on the use of the Guaranteed Minimum Pension (GMP) conversion legislation’.]]>{D837EA15-4FDB-409F-8A6B-A065D46331E3}https://www.shoosmiths.co.uk/client-resources/legal-updates/government-response-on-pensions-white-paper.aspxGovernment response on Pensions White PaperThe government has published its response to its consultation on the pensions White Paper (Protecting Defined Benefit Pension Schemes).Wed, 13 Mar 2019 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[The government has published its response to its consultation on the pensions White Paper (Protecting Defined Benefit Pension Schemes).]]>{5CF48EB5-489F-416B-BF28-CC6240F3B928}https://www.shoosmiths.co.uk/client-resources/legal-updates/supreme-court-rules-on-barnardos-v-buckinghamshire-pensions-case.aspxSupreme Court rules on Barnardo’s v Buckinghamshire pensions caseIt has certainly been a busy few weeks for pensions in the law courts. Hot on the heels of the High Court decision on GMP equalisation, the Supreme Court last week handed down judgment in Barnardo's v Buckinghamshire and others, the latest in a line of cases dealing with the appropriate index to use in increasing pensions in payment.Thu, 22 Nov 2018 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[It has certainly been a busy few weeks for pensions in the law courts. Hot on the heels of the High Court decision on GMP equalisation, the Supreme Court last week handed down judgment in Barnardo's v Buckinghamshire and others, the latest in a line of cases dealing with the appropriate index to use in increasing pensions in payment.]]>{6DD0D832-43A4-4C0B-9D91-CDC78B8825A6}https://www.shoosmiths.co.uk/client-resources/legal-updates/equalisation-and-guaranteed-minimum-pensions.aspxEqualisation and Guaranteed Minimum PensionsMorgan J concluded that pension schemes which provided GMPs must equalise benefits provided by the scheme in order to address the inequalities arising out of GMPs.Fri, 02 Nov 2018 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[Morgan J concluded that pension schemes which provided GMPs must equalise benefits provided by the scheme in order to address the inequalities arising out of GMPs.]]>{FB6D63F9-5CF6-4DE1-9E11-44008126B39B}https://www.shoosmiths.co.uk/client-resources/legal-updates/consultation-dwp-protecting-benefits-invites-comments-14523.aspxConsultation document from the DWP on protecting defined benefits schemes invites comments Following on from the government's recent White Paper in connection with defined benefit pension schemes, the Department for Work and Pensions has issued a consultation document. This is entitled "Protecting defined benefit pension schemes - a stronger Pensions Regulator" and proposes changes to the existing notifiable events regime, a new DB fines system and amendments to the anti-avoidance powers of the Pension Regulator (TRP). The DWP is inviting comments via its website until 21 August 2018. We fully intend to respond to that consultation and give Shoosmiths' views. In the meantime we have been considering our response and set out our initial thoughts below. For those of our clients who have comments but would rather not respond directly we would be happy to include those within our response. Please either contact Lynette Lewis or your usual pensions contact. Whilst we do not think it necessary to fully summarise the DWP's proposals as the consultation document itself is very readable, some of the main changes in more detail include introducing the concept of declarations of intent which will sit alongside the notifiable events framework, amending TPR's guidance relating to the voluntary clearance process, amending the material detriment test which is used in assessing whether a contribution notice is reasonable or not, and strengthening both the contribution notice and financial support direction regimes. Clearly, much of this is a reaction to headline grabbing stories relating to various business failures across the UK including, amongst others, BHS, Carillion and Toys R Us. Although many of the proposals look sensible to us and are clearly aimed at protecting members' benefits there clearly will be 'some devil in the detail'. We have some concern from an employer's perspective that some of the proposals are far reaching and broad and will catch actions that will not necessarily be detrimental to a defined benefit pension scheme. We think the notifiable events regime should operate in the context that not all actions undertaken by corporates are designed to catch the pension scheme out and many actions are taken which directors reasonably feel will improve the prospects of their business. As always, it will be employers who are less inclined to support their schemes who will try and avoid full compliance and therefore we welcome the proposed new penalties and the recognition that wilful and reckless behaviour should be penalised the most. For instance, we think simply missing a deadline unintentionally should be low on TPR's list when compared to deliberately misleading trustees regarding corporate activity. Although this is not an exhaustive list, we have the following comments regarding the DWP's proposals: Extension of the notifiable events regime to the granting of security on a debt to give it priority over debt to the scheme - On the whole, we agree that the granting of security to a third party is likely to prejudice the pension scheme particularly where it does not involve any new monies being provided to the employer. However, the draft legislation needs to ensure that some degree of materiality is built into the test. For instance, there will be circumstances where an employer may well grant security to a third party over a specific piece of equipment which would be immaterial to the general leverage structure of the employer or detrimental in any material way to the scheme; Changing the notifiable events regime such that significant restructuring of the employer's board of directors would need to be notified - Again, we are of the view that this is generally a sensible move, but the drafting would need to be clear so that new appointments cannot simply be made using different terminology to avoid the need to notify. Additionally, not all restructuring appointments will be bad news. Sometimes, they can actually lead to improvement in the covenant of the employer. Likewise, just because a debt or equity funder appoints a member of the board doesn't mean that the employer is in a bad way. These appointments are often made to protect the relevant funder's interests; Amending the notifiable events regime such that the taking of pre-appointment insolvency or restructuring advice needs to be notified - Again there are circumstances where this will be appropriate. However, the legislation must be sufficiently well drafted such that it doesn't catch tax restructuring papers which would not necessarily be bad news to the pension scheme; Extending the breach of banking covenant notifiable event - We think that this gives rise to some practical difficulties as banks do not always defer, amend or waive covenants in stressed situations. For instance, one of our banking lawyers has recently been involved in the extension of a financial covenant where the employer in question has been awarded a major new contract and needs to undertake some initial capital expenditure in order to set up the business to take on that work. Although this will need a revision to an existing banking covenant, it is seen by the bank as being good news. Likewise any pension scheme should see the award of a blue chip contract as beneficial. Again, the devil will be in the detail here as some covenants being amended may just be as a result of practical changes within the business and not because of poor performance; We have also considered the DWP's comments around the timing of making a notifiable event report. Clearly the regime needs to operate in the commercial world - just because heads of agreement have been entered into doesn't mean that a transaction will always take place. Heads of agreement are never legally binding within England and Wales. In any event, well intentioned, informed and advised employers will already be entering into early discussions with trustees and what we would not want to see happen is for this natural sharing of information to be impeded by the requirement to notify the TPR. Confidentiality can clearly be key in some circumstances; Extension of the notifiable events regime to the sale of a material proportion of business and assets - Again, this will depend upon what is ultimately happening with the proceeds of sale. If these are to be used by the same entity to improve ongoing business or intra group and the trustees will retain direct recourse to the relevant new entity then consideration should be given to carving this out from the regime; Creation of an additional limb to the material detriment test to be assessed by reference to the weakening of the employer - We are unsure exactly how this would be tested. Would it be by reference to an immediate but short lived weakening, or would it be by reference to a long term weakening? To some extent, it is very likely that most circumstances are already covered by the material detriment test. Likewise, directors already have a duty to shareholders and creditors to not undertake actions to weaken the position of the employer. This should be taken into account when the legislation is drafted; Broadening the scope of financial support directions to allow them to be issued to a greater range of individuals - This is likely to be acceptable, but only provided the reasonableness test continues to apply. Otherwise why should a party that is neither connected or associated be liable to make contributions to a scheme of which they are not involved? To summarise, we welcome the DWP's suggestion of strengthening TPR's powers but do think that the legislation needs to be carefully drafted and not restrict employers in the commercial world. Allowing directors to focus on the best ways to improve an employer's business is surely the best way to promote a stronger covenant available to defined benefit trustees. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 09 Aug 2018 00:00:00 +0100<![CDATA[Lynette Lewis ]]><![CDATA[ Following on from the government's recent White Paper in connection with defined benefit pension schemes, the Department for Work and Pensions has issued a consultation document. This is entitled "Protecting defined benefit pension schemes - a stronger Pensions Regulator" and proposes changes to the existing notifiable events regime, a new DB fines system and amendments to the anti-avoidance powers of the Pension Regulator (TRP). The DWP is inviting comments via its website until 21 August 2018. We fully intend to respond to that consultation and give Shoosmiths' views. In the meantime we have been considering our response and set out our initial thoughts below. For those of our clients who have comments but would rather not respond directly we would be happy to include those within our response. Please either contact Lynette Lewis or your usual pensions contact. Whilst we do not think it necessary to fully summarise the DWP's proposals as the consultation document itself is very readable, some of the main changes in more detail include introducing the concept of declarations of intent which will sit alongside the notifiable events framework, amending TPR's guidance relating to the voluntary clearance process, amending the material detriment test which is used in assessing whether a contribution notice is reasonable or not, and strengthening both the contribution notice and financial support direction regimes. Clearly, much of this is a reaction to headline grabbing stories relating to various business failures across the UK including, amongst others, BHS, Carillion and Toys R Us. Although many of the proposals look sensible to us and are clearly aimed at protecting members' benefits there clearly will be 'some devil in the detail'. We have some concern from an employer's perspective that some of the proposals are far reaching and broad and will catch actions that will not necessarily be detrimental to a defined benefit pension scheme. We think the notifiable events regime should operate in the context that not all actions undertaken by corporates are designed to catch the pension scheme out and many actions are taken which directors reasonably feel will improve the prospects of their business. As always, it will be employers who are less inclined to support their schemes who will try and avoid full compliance and therefore we welcome the proposed new penalties and the recognition that wilful and reckless behaviour should be penalised the most. For instance, we think simply missing a deadline unintentionally should be low on TPR's list when compared to deliberately misleading trustees regarding corporate activity. Although this is not an exhaustive list, we have the following comments regarding the DWP's proposals: Extension of the notifiable events regime to the granting of security on a debt to give it priority over debt to the scheme - On the whole, we agree that the granting of security to a third party is likely to prejudice the pension scheme particularly where it does not involve any new monies being provided to the employer. However, the draft legislation needs to ensure that some degree of materiality is built into the test. For instance, there will be circumstances where an employer may well grant security to a third party over a specific piece of equipment which would be immaterial to the general leverage structure of the employer or detrimental in any material way to the scheme; Changing the notifiable events regime such that significant restructuring of the employer's board of directors would need to be notified - Again, we are of the view that this is generally a sensible move, but the drafting would need to be clear so that new appointments cannot simply be made using different terminology to avoid the need to notify. Additionally, not all restructuring appointments will be bad news. Sometimes, they can actually lead to improvement in the covenant of the employer. Likewise, just because a debt or equity funder appoints a member of the board doesn't mean that the employer is in a bad way. These appointments are often made to protect the relevant funder's interests; Amending the notifiable events regime such that the taking of pre-appointment insolvency or restructuring advice needs to be notified - Again there are circumstances where this will be appropriate. However, the legislation must be sufficiently well drafted such that it doesn't catch tax restructuring papers which would not necessarily be bad news to the pension scheme; Extending the breach of banking covenant notifiable event - We think that this gives rise to some practical difficulties as banks do not always defer, amend or waive covenants in stressed situations. For instance, one of our banking lawyers has recently been involved in the extension of a financial covenant where the employer in question has been awarded a major new contract and needs to undertake some initial capital expenditure in order to set up the business to take on that work. Although this will need a revision to an existing banking covenant, it is seen by the bank as being good news. Likewise any pension scheme should see the award of a blue chip contract as beneficial. Again, the devil will be in the detail here as some covenants being amended may just be as a result of practical changes within the business and not because of poor performance; We have also considered the DWP's comments around the timing of making a notifiable event report. Clearly the regime needs to operate in the commercial world - just because heads of agreement have been entered into doesn't mean that a transaction will always take place. Heads of agreement are never legally binding within England and Wales. In any event, well intentioned, informed and advised employers will already be entering into early discussions with trustees and what we would not want to see happen is for this natural sharing of information to be impeded by the requirement to notify the TPR. Confidentiality can clearly be key in some circumstances; Extension of the notifiable events regime to the sale of a material proportion of business and assets - Again, this will depend upon what is ultimately happening with the proceeds of sale. If these are to be used by the same entity to improve ongoing business or intra group and the trustees will retain direct recourse to the relevant new entity then consideration should be given to carving this out from the regime; Creation of an additional limb to the material detriment test to be assessed by reference to the weakening of the employer - We are unsure exactly how this would be tested. Would it be by reference to an immediate but short lived weakening, or would it be by reference to a long term weakening? To some extent, it is very likely that most circumstances are already covered by the material detriment test. Likewise, directors already have a duty to shareholders and creditors to not undertake actions to weaken the position of the employer. This should be taken into account when the legislation is drafted; Broadening the scope of financial support directions to allow them to be issued to a greater range of individuals - This is likely to be acceptable, but only provided the reasonableness test continues to apply. Otherwise why should a party that is neither connected or associated be liable to make contributions to a scheme of which they are not involved? To summarise, we welcome the DWP's suggestion of strengthening TPR's powers but do think that the legislation needs to be carefully drafted and not restrict employers in the commercial world. Allowing directors to focus on the best ways to improve an employer's business is surely the best way to promote a stronger covenant available to defined benefit trustees. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{E5D8362D-431E-4BBD-83C2-3EFD70479670}https://www.shoosmiths.co.uk/client-resources/legal-updates/pension-schemes-amendments-overpayments-14282.aspxOccupational Pension Schemes: amendments and overpayments The High Court has recently ruled that there is no statutory limitation period in which to recover pension overpayment so long as recovery is by adjusting future overpayments. One caveat with this is that this aspect of the judgment was in fact obiter and therefore not necessarily legally binding but it does give an indication of how the Court might approach this issue in the future. In Burgess and others v Bic, the main issue in the case was whether introduction of pension increases had been validly introduced. The case also looked at whether the statutory limitation of six years applied to cases of equitable recoupment (in other words, only via adjustment to benefits rather than where a member is specifically required to make repayment). The question turned on whether increases in respect of pre-1997 pensionable service had been properly paid and if not, could they be recovered and if they had been properly paid, could they be stopped? For pensionable service before 6 April 1997, there is no general statutory requirement to increase pensions in payment. The case considered the process by which increases to pensions in payment had been introduced. These were introduced following a trustee meeting in 1991 and had been communicated to members in various subsequent announcements to members. Arnold J considered the evidence in front of him to look at the basis on which pre-1997 increases were paid. For pensionable service after 6 April 1997, legislation requires pensions in payment to be increased. Arnold J ran through the general principles of construction of Pension Schemes, in particular the following: Members are not volunteers - the pension benefits they receive are part of their remuneration package; this puts them in a different position to ordinary trust beneficiaries; The scheme documents should be construed to give reasonable and practical effect to the scheme. Arnold J describes how it would be "crying for the moon" to expect the draftsperson to have allowed for every eventuality in the scheme documents; He referred to the patchwork effect, essentially as a consequence of the layering of numbers of pension scheme changes over the years. Arnold J described how amending provisions should be considered at the time of their adoption and not at the time the original deed was signed; The rules should be interpreted in light of the factual situation; The court should interpret the rules without any predisposition to correct particular philosophical approaches; The rules should be interpreted as a whole. Arnold J concluded that the 1993 definitive deed and rules could have valid retrospective effect. He cited Shannon v Viavi in which the judge concluded that there was no presumption against a retrospective change in the operation of a pension scheme. Arnold J observed that this did not mean that a breach of trust could be retrospectively validated, but that there was scope to give valid retrospective effect to the 1993 deed on the basis that this was permissible under the terms of the scheme governing documentation under which the 1993 deed was adopted. In considering whether the increases in respect of pre-1997 pensionable service were properly paid, Arnold J went through a number of different points which had been contended by the claimants. He rejected some of the grounds raised but concluded that the decision to pay pre-1997 increases was validly made on a number of different grounds. By virtue of the surplus powers in the 1993 deed The principal employer said that this was not a free standing power and that there was no evidence of any recommendation by the scheme actuary. Arnold J disagreed. He said that there was nothing to suggest the increase did not apply to new joiners in the scheme. He also concluded that the actuarial recommendation could be inferred from the 1991 minutes. By virtue of the free standing powers augmentation powers under Clause 9 The principal employer contended that this power did not permit across the board augmentation but instead only augmentation on a member by member basis. Additionally the principal employer's view was that the augmentation did not apply to new joiners. Arnold J disagreed. By virtue of Clause 4 of the deed Clause 4 enable the Trustees to modify the rules by written resolution and with principal employer consent. Arnold J concluded that the Trustee minutes constituted a resolution in writing for these purposes. Arnold J said that if the increases had been properly paid, then they could not now be stopped. He then went on to consider the question of whether if the payment had not been properly made, could the trustees recover the overpayments. He recognised that this issue only arose if his judgment was wrong. He looked at the concept of equitable recoupment and also the limitation requirements. He cited a case (Weber v the Department of Education) where it was established that a six year limitation did apply. He noted that if there were no specific limitation periods which applied to equitable recoupment, then one would have to look at whether members had an estoppel argument preventing recovery of the overpayments or whether the doctrine of laches would apply (this doctrine requires equitable remedies to be brought in a timely manner). He said that these needed to be looked at on an individual basis rather than a group basis. Trustees should note that Arnold J's view on recoupment is not binding on future courts, but it may give an idea of how they can approach overpayments cases if appropriate. Schemes who are going through GMP reconciliation exercises may find that the reconciliation exercise uncovers overpayments which have been ongoing for some time. Use of the recoupment remedy may assist the trustees in recovering those overpayments. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 25 Jun 2018 00:00:00 +0100<![CDATA[Suzanne Burrell ]]><![CDATA[ The High Court has recently ruled that there is no statutory limitation period in which to recover pension overpayment so long as recovery is by adjusting future overpayments. One caveat with this is that this aspect of the judgment was in fact obiter and therefore not necessarily legally binding but it does give an indication of how the Court might approach this issue in the future. In Burgess and others v Bic, the main issue in the case was whether introduction of pension increases had been validly introduced. The case also looked at whether the statutory limitation of six years applied to cases of equitable recoupment (in other words, only via adjustment to benefits rather than where a member is specifically required to make repayment). The question turned on whether increases in respect of pre-1997 pensionable service had been properly paid and if not, could they be recovered and if they had been properly paid, could they be stopped? For pensionable service before 6 April 1997, there is no general statutory requirement to increase pensions in payment. The case considered the process by which increases to pensions in payment had been introduced. These were introduced following a trustee meeting in 1991 and had been communicated to members in various subsequent announcements to members. Arnold J considered the evidence in front of him to look at the basis on which pre-1997 increases were paid. For pensionable service after 6 April 1997, legislation requires pensions in payment to be increased. Arnold J ran through the general principles of construction of Pension Schemes, in particular the following: Members are not volunteers - the pension benefits they receive are part of their remuneration package; this puts them in a different position to ordinary trust beneficiaries; The scheme documents should be construed to give reasonable and practical effect to the scheme. Arnold J describes how it would be "crying for the moon" to expect the draftsperson to have allowed for every eventuality in the scheme documents; He referred to the patchwork effect, essentially as a consequence of the layering of numbers of pension scheme changes over the years. Arnold J described how amending provisions should be considered at the time of their adoption and not at the time the original deed was signed; The rules should be interpreted in light of the factual situation; The court should interpret the rules without any predisposition to correct particular philosophical approaches; The rules should be interpreted as a whole. Arnold J concluded that the 1993 definitive deed and rules could have valid retrospective effect. He cited Shannon v Viavi in which the judge concluded that there was no presumption against a retrospective change in the operation of a pension scheme. Arnold J observed that this did not mean that a breach of trust could be retrospectively validated, but that there was scope to give valid retrospective effect to the 1993 deed on the basis that this was permissible under the terms of the scheme governing documentation under which the 1993 deed was adopted. In considering whether the increases in respect of pre-1997 pensionable service were properly paid, Arnold J went through a number of different points which had been contended by the claimants. He rejected some of the grounds raised but concluded that the decision to pay pre-1997 increases was validly made on a number of different grounds. By virtue of the surplus powers in the 1993 deed The principal employer said that this was not a free standing power and that there was no evidence of any recommendation by the scheme actuary. Arnold J disagreed. He said that there was nothing to suggest the increase did not apply to new joiners in the scheme. He also concluded that the actuarial recommendation could be inferred from the 1991 minutes. By virtue of the free standing powers augmentation powers under Clause 9 The principal employer contended that this power did not permit across the board augmentation but instead only augmentation on a member by member basis. Additionally the principal employer's view was that the augmentation did not apply to new joiners. Arnold J disagreed. By virtue of Clause 4 of the deed Clause 4 enable the Trustees to modify the rules by written resolution and with principal employer consent. Arnold J concluded that the Trustee minutes constituted a resolution in writing for these purposes. Arnold J said that if the increases had been properly paid, then they could not now be stopped. He then went on to consider the question of whether if the payment had not been properly made, could the trustees recover the overpayments. He recognised that this issue only arose if his judgment was wrong. He looked at the concept of equitable recoupment and also the limitation requirements. He cited a case (Weber v the Department of Education) where it was established that a six year limitation did apply. He noted that if there were no specific limitation periods which applied to equitable recoupment, then one would have to look at whether members had an estoppel argument preventing recovery of the overpayments or whether the doctrine of laches would apply (this doctrine requires equitable remedies to be brought in a timely manner). He said that these needed to be looked at on an individual basis rather than a group basis. Trustees should note that Arnold J's view on recoupment is not binding on future courts, but it may give an idea of how they can approach overpayments cases if appropriate. Schemes who are going through GMP reconciliation exercises may find that the reconciliation exercise uncovers overpayments which have been ongoing for some time. Use of the recoupment remedy may assist the trustees in recovering those overpayments. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{F3F98F38-095B-4DE7-8E08-D73A69746042}https://www.shoosmiths.co.uk/client-resources/legal-updates/pensions-update-regulations-came-in-force-6-april-2018-14053.aspxPensions Legal Update - New Regulations which came into force on 6 April 2018 A number of regulatory changes relating to pension schemes came into force on 6 April 2018. These changes include regulations covering the following: Bulk transfers of money purchase benefits without consent; Safeguarded flexible benefits, risk warnings and appropriate independent advice; Chair's Governance Statement and disclosure of costs and charges; Transfers of contracted out benefits The first topic is the subject of a separate legal update which can be found here. This update looks at the other changes which recently came into force. Chair's statement of governance and disclosure of costs and charges. The Occupational Pension Scheme's (Administration and Disclosure (Amendment)) Regulation 2018 amends the Occupational Pension Scheme's (Scheme Administration) Regulation 1996 and the Disclosure of Information Regulations 2013. Since 6 April 2018, the Chair's Governance Statement in relation to money purchase benefits will be required to include information and requests for charges for each default arrangement and each alternative fund option and not simply the range of charges. Additionally, the statement will be required to provide an illustration of the cumulative effect of charges and transactions on the value of a member's pension savings. Information relating to costs and charges will also need to be included on a website and the details of the website should be included in an annual benefits statement. There is a specific requirement in the Regulations to have regard to guidance which is issued and this guidance has been produced by the DWP. The information will be required to be published within seven months of the first scheme year end date falling on or after 6 April 2018. The DWP statutory guidance on the illustrations sets out the following matters which the illustrations should cover: The saving pot size (this should be representative of actual pot sizes within the Scheme and the suggestion is that perhaps the meridian within the Scheme should be used); Contributions; Long Term investment return; Adjustments to the effect of costs and charges based on an average of five years transactions; Time - this should reflect the approximate duration that the youngest scheme Member has until retirement. The relevant information should be published on a publicly available website and in a way that can be indexed by search engines. The web address should be referenced in the member's annual benefits statement. One option would be to publish the information on the employer's website and the web page must not include text which prevents the page from being indexed and must link to other pages within the web search engine. The information may not be password protected or require a member to provide information to access the information. From 6 April 2019 additional information regarding pooled funds will also need to be included. A statement regarding the pooled funds information will be required to be provided to any member or recognised trade union who requests it. Members and recognised trade unions may make such a request once in any six month period. Additionally, the annual benefits statement must say how this information can be obtained. Additionally, the legislation amends the Statutory Money Purchase Illustration requirements so that these must cross-refer to the pooled funds requirement with the Chair's Statement and also notify members that they have a right to request a hard copy document when the trustees are satisfied that it would be unreasonable for that person to obtain the document from the website on which it is published. Safeguarded Flexible Benefit and Risk Warnings Amending Regulations came into force on 6 April 2018 under which members with safeguarded flexible benefit are required to receive certain risk warnings from the pension scheme trustees where the benefits are valued at less than £30,000. Where benefits are valued at more than £30,000 the member must obtain appropriate independent advice. A safeguarded flexible benefit is one which looks like a money purchase benefit but has a guarantee or promise of some kind sitting behind it. This could include a guaranteed annuity rate or in a hybrid scheme where there is a money purchase benefit with a salary-related underpin. When assessing whether the value of member's pension pots is above the threshold at which the Member is required to receive appropriate independent advice, the regulations have been amended so that the transfer value of that Member's safeguarded rights should be used. The DWP has published guidance which sets out and explains the information requirements and also suggests best practice for trustees when providing risk warnings. Personalised risk warnings will be required where a member has safeguarded flexible benefits if any of the following specific triggers arise. The following types of action will trigger a risk warning: The member makes a written enquiry about carrying out a relevant transaction (this will include either a transfer payment, conversion of benefits, payment of uncrystallised fund pension lump sum or makes a written enquiry about applying for a transfer quotation; The member applies to obtain a transfer quotation; The provider gives the transfer quotation; or The member makes a written request for a valuation. Personalised risk warnings must be sent within a month of the event triggering the requirements and at the same time as or in advance of the member's transfer quotation and no later than two weeks before the relevant transaction (such as a transfer) completes. Personalised risk warnings must include the following: Informing the member that their pension contains one or more potentially valuable guarantees, details of features and how they are connected to them; Highlights to the member that proceeding with the proposed transaction will result in those guarantees being lost and detailing any other circumstances in which the guarantees will be lost; Explaining how the guarantees can be taken and any restrictions which apply. The narrative section must be clear and intelligible and a warning to the member that they risk losing the guarantees must be prominent. The regulations require that in order to determine whether a Member is required to seek financial advice, the trustees must value the member's safeguarded benefits in accordance with the relevant provisions of the Pension Schemes Act 1993 and related regulations, whether or not the individual has a statutory right to a transfer value. A further point to note is that although the requirement to issue personalised risk warnings does not apply in respect of final salary benefits, there are some changes which will apply. From 6 April 2018, occupational pension schemes are required to disregard any increase resulting from a "best estimate" calculation of the transfer value when determining whether members are required to seek financial advice. Therefore even if transfer values are offered by trustees on a more generous basis than best estimate, they will need to determine whether the member is required to seek advice using the lower best estimate calculation. The requirement to issue personalised risk warnings does not apply in respect of safeguarded non-flexible benefits (in other words, defined benefits). Bulk transfers of contracted out rights on a without consent basis to schemes that were never contracted-out The Contracting Out (Transfer and Transfer Payment) Amendment Regulations 2018, which amend the existing Contracting-out (Transfer and Transfer Payment) Regulations 1996, came into force on 6 April 2018. The new regulations have mainly been prepared in response to the cessation of salary related contracting out since 2016. Commentary across the pensions industry suggests that the existing restriction, namely that bulk transfers without consent of contracted-out rights can only be made to schemes that have been contracted out, has been a significant barrier in recent scheme restructurings. Under the current legislation, a bulk transfer of accrued contracted out rights, or pensions in payment deriving from contracted out rights may only be made without obtaining individual member consent in limited circumstances. Mainly, a transfer may only be made from a scheme that was formerly contracted out to another such scheme (this is the requirement that is being changed under the new regulations). Additionally, the transfer must qualify as a "connected employer transfer" and the existing regulations specify two conditions, one of which needs to be satisfied, for a transfer to qualify as a "connected employer transfer", being: The transferring and receiving scheme relate to persons who are or have been in employment with the same employer; The transferring and receiving scheme relate to persons who are or have been in employment with different employers but the transfer is a result of a financial transaction between the employers or the employers are part of the same group. The requirements around the connected employer transfer condition aren't changing but new conditions will apply where the transfer is being made to a scheme that has never been contracted out. The conditions slightly vary depending on whether the rights being transferred are GMPs or section 9(2B) rights but, in both cases, and in very simple terms, the receiving scheme needs to provide benefits that are payable on the same basis as GMPs/ section 9(2B) rights so essentially the members' existing protections in respect of the benefits they will receive are preserved: The amendments to the 1996 Regulations will permit a connected employer transfer in respect of GMPs from a salary related scheme to a scheme that has never been contracted out if: In the case of accrued rights to GMPs, the receiving scheme provides for pensions that are payable on the same basis as GMPs eg. In relation to increases, revaluation, commutation For GMPs already in payment, the receiving scheme needs to provide for the payment of GMPs at a rate that is no lower than the rate at which they were paid by the transferring scheme, and provide for annual increases in line with relevant provisions of the PSA93. For section 9(2B) rights, the conditions will be that the benefits credited in the receiving scheme in respect of accrued section 9(2B) rights or pensions in payment deriving from section 9(2B) rights must be such as would have complied with section 12A(1) of the PSA93 as it had effect immediately before April 2016.In other words, the benefits provided under the receiving scheme must comply with legislative requirements/ the statutory standard for provision of benefits in respect of section 9(2B) rights. In addition, here the actuary must provide a certificate that the transfer credits in the receiving scheme are no less favourable (i.e. the usual regulation 12(3) certificate). DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Fri, 20 Apr 2018 00:00:00 +0100<![CDATA[Suzanne Burrell Alexandra Ventham ]]><![CDATA[ A number of regulatory changes relating to pension schemes came into force on 6 April 2018. These changes include regulations covering the following: Bulk transfers of money purchase benefits without consent; Safeguarded flexible benefits, risk warnings and appropriate independent advice; Chair's Governance Statement and disclosure of costs and charges; Transfers of contracted out benefits The first topic is the subject of a separate legal update which can be found here. This update looks at the other changes which recently came into force. Chair's statement of governance and disclosure of costs and charges. The Occupational Pension Scheme's (Administration and Disclosure (Amendment)) Regulation 2018 amends the Occupational Pension Scheme's (Scheme Administration) Regulation 1996 and the Disclosure of Information Regulations 2013. Since 6 April 2018, the Chair's Governance Statement in relation to money purchase benefits will be required to include information and requests for charges for each default arrangement and each alternative fund option and not simply the range of charges. Additionally, the statement will be required to provide an illustration of the cumulative effect of charges and transactions on the value of a member's pension savings. Information relating to costs and charges will also need to be included on a website and the details of the website should be included in an annual benefits statement. There is a specific requirement in the Regulations to have regard to guidance which is issued and this guidance has been produced by the DWP. The information will be required to be published within seven months of the first scheme year end date falling on or after 6 April 2018. The DWP statutory guidance on the illustrations sets out the following matters which the illustrations should cover: The saving pot size (this should be representative of actual pot sizes within the Scheme and the suggestion is that perhaps the meridian within the Scheme should be used); Contributions; Long Term investment return; Adjustments to the effect of costs and charges based on an average of five years transactions; Time - this should reflect the approximate duration that the youngest scheme Member has until retirement. The relevant information should be published on a publicly available website and in a way that can be indexed by search engines. The web address should be referenced in the member's annual benefits statement. One option would be to publish the information on the employer's website and the web page must not include text which prevents the page from being indexed and must link to other pages within the web search engine. The information may not be password protected or require a member to provide information to access the information. From 6 April 2019 additional information regarding pooled funds will also need to be included. A statement regarding the pooled funds information will be required to be provided to any member or recognised trade union who requests it. Members and recognised trade unions may make such a request once in any six month period. Additionally, the annual benefits statement must say how this information can be obtained. Additionally, the legislation amends the Statutory Money Purchase Illustration requirements so that these must cross-refer to the pooled funds requirement with the Chair's Statement and also notify members that they have a right to request a hard copy document when the trustees are satisfied that it would be unreasonable for that person to obtain the document from the website on which it is published. Safeguarded Flexible Benefit and Risk Warnings Amending Regulations came into force on 6 April 2018 under which members with safeguarded flexible benefit are required to receive certain risk warnings from the pension scheme trustees where the benefits are valued at less than £30,000. Where benefits are valued at more than £30,000 the member must obtain appropriate independent advice. A safeguarded flexible benefit is one which looks like a money purchase benefit but has a guarantee or promise of some kind sitting behind it. This could include a guaranteed annuity rate or in a hybrid scheme where there is a money purchase benefit with a salary-related underpin. When assessing whether the value of member's pension pots is above the threshold at which the Member is required to receive appropriate independent advice, the regulations have been amended so that the transfer value of that Member's safeguarded rights should be used. The DWP has published guidance which sets out and explains the information requirements and also suggests best practice for trustees when providing risk warnings. Personalised risk warnings will be required where a member has safeguarded flexible benefits if any of the following specific triggers arise. The following types of action will trigger a risk warning: The member makes a written enquiry about carrying out a relevant transaction (this will include either a transfer payment, conversion of benefits, payment of uncrystallised fund pension lump sum or makes a written enquiry about applying for a transfer quotation; The member applies to obtain a transfer quotation; The provider gives the transfer quotation; or The member makes a written request for a valuation. Personalised risk warnings must be sent within a month of the event triggering the requirements and at the same time as or in advance of the member's transfer quotation and no later than two weeks before the relevant transaction (such as a transfer) completes. Personalised risk warnings must include the following: Informing the member that their pension contains one or more potentially valuable guarantees, details of features and how they are connected to them; Highlights to the member that proceeding with the proposed transaction will result in those guarantees being lost and detailing any other circumstances in which the guarantees will be lost; Explaining how the guarantees can be taken and any restrictions which apply. The narrative section must be clear and intelligible and a warning to the member that they risk losing the guarantees must be prominent. The regulations require that in order to determine whether a Member is required to seek financial advice, the trustees must value the member's safeguarded benefits in accordance with the relevant provisions of the Pension Schemes Act 1993 and related regulations, whether or not the individual has a statutory right to a transfer value. A further point to note is that although the requirement to issue personalised risk warnings does not apply in respect of final salary benefits, there are some changes which will apply. From 6 April 2018, occupational pension schemes are required to disregard any increase resulting from a "best estimate" calculation of the transfer value when determining whether members are required to seek financial advice. Therefore even if transfer values are offered by trustees on a more generous basis than best estimate, they will need to determine whether the member is required to seek advice using the lower best estimate calculation. The requirement to issue personalised risk warnings does not apply in respect of safeguarded non-flexible benefits (in other words, defined benefits). Bulk transfers of contracted out rights on a without consent basis to schemes that were never contracted-out The Contracting Out (Transfer and Transfer Payment) Amendment Regulations 2018, which amend the existing Contracting-out (Transfer and Transfer Payment) Regulations 1996, came into force on 6 April 2018. The new regulations have mainly been prepared in response to the cessation of salary related contracting out since 2016. Commentary across the pensions industry suggests that the existing restriction, namely that bulk transfers without consent of contracted-out rights can only be made to schemes that have been contracted out, has been a significant barrier in recent scheme restructurings. Under the current legislation, a bulk transfer of accrued contracted out rights, or pensions in payment deriving from contracted out rights may only be made without obtaining individual member consent in limited circumstances. Mainly, a transfer may only be made from a scheme that was formerly contracted out to another such scheme (this is the requirement that is being changed under the new regulations). Additionally, the transfer must qualify as a "connected employer transfer" and the existing regulations specify two conditions, one of which needs to be satisfied, for a transfer to qualify as a "connected employer transfer", being: The transferring and receiving scheme relate to persons who are or have been in employment with the same employer; The transferring and receiving scheme relate to persons who are or have been in employment with different employers but the transfer is a result of a financial transaction between the employers or the employers are part of the same group. The requirements around the connected employer transfer condition aren't changing but new conditions will apply where the transfer is being made to a scheme that has never been contracted out. The conditions slightly vary depending on whether the rights being transferred are GMPs or section 9(2B) rights but, in both cases, and in very simple terms, the receiving scheme needs to provide benefits that are payable on the same basis as GMPs/ section 9(2B) rights so essentially the members' existing protections in respect of the benefits they will receive are preserved: The amendments to the 1996 Regulations will permit a connected employer transfer in respect of GMPs from a salary related scheme to a scheme that has never been contracted out if: In the case of accrued rights to GMPs, the receiving scheme provides for pensions that are payable on the same basis as GMPs eg. In relation to increases, revaluation, commutation For GMPs already in payment, the receiving scheme needs to provide for the payment of GMPs at a rate that is no lower than the rate at which they were paid by the transferring scheme, and provide for annual increases in line with relevant provisions of the PSA93. For section 9(2B) rights, the conditions will be that the benefits credited in the receiving scheme in respect of accrued section 9(2B) rights or pensions in payment deriving from section 9(2B) rights must be such as would have complied with section 12A(1) of the PSA93 as it had effect immediately before April 2016.In other words, the benefits provided under the receiving scheme must comply with legislative requirements/ the statutory standard for provision of benefits in respect of section 9(2B) rights. In addition, here the actuary must provide a certificate that the transfer credits in the receiving scheme are no less favourable (i.e. the usual regulation 12(3) certificate). DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{151A47AD-D7C3-4784-B657-DDC15170D234}https://www.shoosmiths.co.uk/services/pensions-89.aspxPensionsFri, 16 Mar 2018 00:00:00 Z<![CDATA[David Thompson Heather Chandler ]]>{0492D099-592A-4605-8A4A-49AB69ABD1A2}https://www.shoosmiths.co.uk/client-resources/legal-updates/transfers-money-pension-rights-regulatory-amendments-13894.aspxTransfers of Money Purchase Pension Rights: Regulatory Amendments Regulations amending the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 have recently been introduced. The regulations will come into force on April 6 2018. Pension scheme trustees who wish to transfer a member's pension benefits to another pension scheme, without obtaining consent from pension scheme members, may do so where the requirements set out in Regulation 12 of the Preservation Regulations are met. This is of course a slightly simplistic view, as in any bulk transfer scenario, there will be a number of factors which trustees have to take into consideration - it is not simply a matter of meeting the regulatory requirements. The requirements of Regulation 12 have never sat particularly well with the transfer of money purchase benefits, not least because of the requirement to obtain an actuarial certificate in respect of a scheme which doesn't ordinarily have any need for a scheme actuary. It has been reported that this requirement has perhaps presented an obstacle to transfers taking place. The amendments to Regulation 12 introduce new requirements enabling pension schemes to make provision for the bulk transfer of relevant money purchase rights to another occupational pension scheme. Readers should note that Regulation 12(1B) does not introduce a statutory power to make such a transfer. Instead it enables schemes to provide for such transfers. It is likely that amendments to a scheme trust deed and rules will be needed, but this is something which trustees will need to check. Reference to relevant money purchase rights, within the regulations, means rights to money purchase benefits where the assets held in relation to those benefits do not include any guarantee, or promise, in relation to the amount of benefit to be provided, or the amount available for the provision of benefit. The requirements set out in the regulations are as follows; it should be noted that there is no requirement to meet all three conditions, but only one. 1. The first is that the receiving scheme is authorised under the Pension Schemes Act 2017. In other words, where the receiving scheme is an authorised master trust, then a bulk transfer without consent may be made. 2. The next possible condition is that: The transferring scheme employer and the receiving scheme employer are undertaking; The transferring scheme employer is an undertaking in relation to the receiving scheme employer; The member whose right it is to be transferred is the current or former employer of an undertaking, which is a group undertaking, in relation to the transferring scheme employer or receiving scheme employer. Group undertaking is defined by reference to Section 116(5) of the Companies Act 2005. Group undertaking means a parent undertaking of subsidiary undertaking of that particular undertaking. It can also mean a subsidiary of any parent undertaking of that undertaking. Broadly speaking, where the transfers are taking place between pension schemes operated by group companies then a bulk transfer without consent may be made. 3. The final route by which a bulk transfer of relevant money purchase rights can take place is where trustees of the transferring scheme obtain and consider written advice in relation to the transfer. The written advice must be from a person who they reasonably believe to be qualified to give that advice by reason of that person's ability, and practical experience and knowledge of pension scheme management. Additionally, the appropriate adviser must be independent of the receiving scheme. A further point to note is that amended regulations also ensure that any member protected by the charging cap should continue to be so protected within the receiving scheme. Trustees should welcome the flexibility introduced by the regulations, particularly given that the existing requirements in the preservation regulations did not work particularly well when transferring money purchase benefits. However, trustees will be aware their duties do not stop with ensuring compliance with the regulations. Transferring money purchase benefits will need careful consideration, both in terms of trust law and in terms of the due diligence which scheme trustees should undertake. Given that trustees will need to be satisfied that agreeing to the bulk transfer is in members' best interests, in practice trustees will not agree to make a transfer without obtaining professional advice even if one of the first two requirements were met. When consulting on the draft amending regulations, the DWP recognised that trustees would have fiduciary duties to act in the best interests of members when deciding whether or not to go ahead with a without consent bulk transfer. The consultation specifically recognised that two elements to consider whether a bulk transfer is in members interests are: whether the receiving scheme is a well-run scheme in which members rights to benefits can reasonably be judged to be secure; and whether member outcomes will be of a similar or better standard than those in the receiving scheme. Guidance is anticipated no later than the end of April 2018. In the Government's response to the consultation on regulations, the DWP quotes from data published by the pensions regulator. According to this data, there are currently 2,180 Defined Contribution Occupational Pension schemes with 12 or more members. More than 80% of these schemes have fewer than 1,000 members. The DWP's perception is that these schemes may represent poor value and the Pensions Regulator's DC Scheme research has found that 55% to 75% of these schemes report having weak governance. Other studies have shown that smaller schemes pay more in charges, are less able to negotiate with service providers and may be less able to invest in certain asset classes. It seems therefore that one of the policy intentions behind the DWP draft regulations is to enable consolidation of DC Benefit to take place more effectively. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 08 Mar 2018 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ Regulations amending the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 have recently been introduced. The regulations will come into force on April 6 2018. Pension scheme trustees who wish to transfer a member's pension benefits to another pension scheme, without obtaining consent from pension scheme members, may do so where the requirements set out in Regulation 12 of the Preservation Regulations are met. This is of course a slightly simplistic view, as in any bulk transfer scenario, there will be a number of factors which trustees have to take into consideration - it is not simply a matter of meeting the regulatory requirements. The requirements of Regulation 12 have never sat particularly well with the transfer of money purchase benefits, not least because of the requirement to obtain an actuarial certificate in respect of a scheme which doesn't ordinarily have any need for a scheme actuary. It has been reported that this requirement has perhaps presented an obstacle to transfers taking place. The amendments to Regulation 12 introduce new requirements enabling pension schemes to make provision for the bulk transfer of relevant money purchase rights to another occupational pension scheme. Readers should note that Regulation 12(1B) does not introduce a statutory power to make such a transfer. Instead it enables schemes to provide for such transfers. It is likely that amendments to a scheme trust deed and rules will be needed, but this is something which trustees will need to check. Reference to relevant money purchase rights, within the regulations, means rights to money purchase benefits where the assets held in relation to those benefits do not include any guarantee, or promise, in relation to the amount of benefit to be provided, or the amount available for the provision of benefit. The requirements set out in the regulations are as follows; it should be noted that there is no requirement to meet all three conditions, but only one. 1. The first is that the receiving scheme is authorised under the Pension Schemes Act 2017. In other words, where the receiving scheme is an authorised master trust, then a bulk transfer without consent may be made. 2. The next possible condition is that: The transferring scheme employer and the receiving scheme employer are undertaking; The transferring scheme employer is an undertaking in relation to the receiving scheme employer; The member whose right it is to be transferred is the current or former employer of an undertaking, which is a group undertaking, in relation to the transferring scheme employer or receiving scheme employer. Group undertaking is defined by reference to Section 116(5) of the Companies Act 2005. Group undertaking means a parent undertaking of subsidiary undertaking of that particular undertaking. It can also mean a subsidiary of any parent undertaking of that undertaking. Broadly speaking, where the transfers are taking place between pension schemes operated by group companies then a bulk transfer without consent may be made. 3. The final route by which a bulk transfer of relevant money purchase rights can take place is where trustees of the transferring scheme obtain and consider written advice in relation to the transfer. The written advice must be from a person who they reasonably believe to be qualified to give that advice by reason of that person's ability, and practical experience and knowledge of pension scheme management. Additionally, the appropriate adviser must be independent of the receiving scheme. A further point to note is that amended regulations also ensure that any member protected by the charging cap should continue to be so protected within the receiving scheme. Trustees should welcome the flexibility introduced by the regulations, particularly given that the existing requirements in the preservation regulations did not work particularly well when transferring money purchase benefits. However, trustees will be aware their duties do not stop with ensuring compliance with the regulations. Transferring money purchase benefits will need careful consideration, both in terms of trust law and in terms of the due diligence which scheme trustees should undertake. Given that trustees will need to be satisfied that agreeing to the bulk transfer is in members' best interests, in practice trustees will not agree to make a transfer without obtaining professional advice even if one of the first two requirements were met. When consulting on the draft amending regulations, the DWP recognised that trustees would have fiduciary duties to act in the best interests of members when deciding whether or not to go ahead with a without consent bulk transfer. The consultation specifically recognised that two elements to consider whether a bulk transfer is in members interests are: whether the receiving scheme is a well-run scheme in which members rights to benefits can reasonably be judged to be secure; and whether member outcomes will be of a similar or better standard than those in the receiving scheme. Guidance is anticipated no later than the end of April 2018. In the Government's response to the consultation on regulations, the DWP quotes from data published by the pensions regulator. According to this data, there are currently 2,180 Defined Contribution Occupational Pension schemes with 12 or more members. More than 80% of these schemes have fewer than 1,000 members. The DWP's perception is that these schemes may represent poor value and the Pensions Regulator's DC Scheme research has found that 55% to 75% of these schemes report having weak governance. Other studies have shown that smaller schemes pay more in charges, are less able to negotiate with service providers and may be less able to invest in certain asset classes. It seems therefore that one of the policy intentions behind the DWP draft regulations is to enable consolidation of DC Benefit to take place more effectively. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{206C63A5-23D5-47FD-B8DC-95EAD71DD254}https://www.shoosmiths.co.uk/client-resources/legal-updates/ppf-contingent-assets-changed-requirements-13789.aspxPPF contingent assets - Changed requirements The Pension Protection Fund (PPF) published new forms of contingent asset agreements in January along with new contingent asset guidance. It follows its publication of a final determination and levy policy statement in December for the levy year 2018/19. Background The PPF is a lifeboat scheme set up under statute to support pension members whose employers become insolvent and can no longer support their pension schemes. It is funded by way of a levy payable by defined benefit pension schemes which is broadly calculated by reference to the size of the deficit in the scheme and the insolvency risk posed by the employer(s). This insolvency risk can be mitigated by the use of contingent assets (guarantees, charges and letters of credit) provided these are properly registered and certified with the PPF and comply with PPF requirements including the use of specific form documents. New and changed requirements Introduction of a requirement in respect of Type A group company guarantees where certification would result in a levy saving of £100k + for trustees to obtain a guarantor strength report from a professional adviser; New form contingent assets which need to be executed for any new arrangements entered into on or after 18 January 2018; Schemes which currently have either a Type A guarantee or a Type B charge which includes a fixed monetary cap on liability will need to be re-executed in the new form by no later than the start of the 2019/2020 levy year. Implications of main changes Those schemes with contingent assets in place and executed before 18 January 2018 do not need to adopt new forms for this levy year (2018/2019) and should re-certify them as normal if they want to take advantage of any potential levy savings. Those schemes whose certification of a Type A guarantee will result in a levy saving of £100k or more need to obtain a report - a guarantor strength report - from a professional covenant adviser (with input from other professional advisers as appropriate) as soon as possible. The new forms of contingent assets see some quite major changes including more options to be agreed between trustees and guarantors. Although we think these changes provide greater flexibility, our view is that the cost of putting such arrangements into place will increase as trustees and employers (and their lawyers) will have more option to negotiate wording. The guidance is also not particularly clear as to what the PPF will regard as "standard form" going forward, particularly where it has suggested some free form drafting is allowed. What are the main changes to the PPF standard forms? The definition of 'Guaranteed Obligations (Secured lLabilities in a charge) has changed - it now refers to all obligations and liabilities of the employers to the scheme but can be tweaked via additional and optional wording to include either fixed amount or fluctuating caps; The most fundamental change is where parties wish to include a fixed monetary cap on liability. This is now split into two - one pre-insolvency and one post-insolvency. The post- insolvency cap will be the figure taken into account for levy calculation purposes. A pre-insolvency cap cannot be included if the post insolvency one is fluctuating - i.e. is based on either the section 179 liability or the section 75 liability in the scheme. However, parties can choose to include a pre-insolvency cap if they want to where a fixed post-insolvency cap is included. This will result in two caps; Pre-insolvency limits can either be unlimited, at least equal to any post insolvency cap (less any pre-insolvency demands) or re-set annually by reference to total contributions due from employers to the scheme; Clearer wording around the guarantee/charge being for the benefit of future trustees; Removal of the amendment and release criteria (although parties can agree to keep it) and replacement by wording allowing amendments and releases by agreement in writing - in which event the trustees consent must not be unreasonably withheld or delayed. The parties can agree matters that must be considered by the trustees on request of the guarantor/chargor to make any changes - but can remain silent on this point. Our view of the amendments Although we welcome the flexibility the amendment provisions allow trustees and guarantors and the ability to set new forms of pre-insolvency caps, agreeing the precise form of document may add additional cost and time in agreeing the document. Additional costs will also be incurred in respect of any registration process required for charge, and in the PPF certification process itself including any new legal opinion(s) needed. We will report on this further once the PPF has released further detail. What do trustees need to do to be able to certify a 'Realisable Recovery'? In order for trustees (and employers) to take advantage of the certification of a Type A group company guarantee, trustees need to certify a fixed monetary amount that a guarantor could meet if demand was made by the trustees - the 'Realisable Recovery'. This means they should certify the lower of: any fixed post-insolvency cap and an amount that the trustees are reasonably satisfied that the guarantor(s) could meet if called upon to do so having taken account of the likely impact of the immediate insolvency of the relevant employers (other than any guarantor which is also an employer). In other words, trustees need to be comfortable that the guarantor could meet this amount and must take proportionate steps to assess the capability of the guarantor to do so It is also now possible (but not compulsory) to certify different realisable recovery amounts for different guarantors by submitting separate contingent asset certificates. What about where the levy saving will (or could) be more than £100K? A new requirement has been introduced requiring trustees to certify that they have obtained an independent covenant assessment in respect of the guarantor (and provide a copy to the PPF by 5pm on 29 March 2018). This needs to be prepared by a professional adviser and be capable of being replied upon by the PPF and meet other criteria set out in the PPF guidance. Helpfully, where the guarantor strength report is consistent (in the opinion of the PPF) with its guidance, the risk reduction test will be deemed to be met and the guarantee taken into account for the purposes of calculation of the levy. While the PPF is not completely prescriptive in the factors which must be included in the report, it has set out a long list which it expects to be included (and expects an explanation where the professional adviser considers them irrelevant). What happens if no guarantor strength report is obtained and the levy saving is more than £100k? Where a report is required but not obtained, the default position is that the guarantee will be rejected by the PPF. However, the PPF has discretion to allow trustees to submit further information to support the 'Realisable Recovery'. It is more likely to exercise this discretion where the trustees had obtained an estimate that the levy saving would be less than £100k and the trustees reasonably believed that would be the case. Where a scheme identifies that it is close to the £100,000 threshold, we advise that a guarantor strength report is obtained to avoid any question of the guarantee not being accepted for levy reduction purposes. Timings As noted above, certification and re-certifications need to be completed by the end of the current levy year. This year that means that where hard copy documents need to be sent to the PPF for new certifications or re-certifications where either a guarantor strength report is required or a new valuation of property has to be produced, the deadline is 5pm on Thursday, 29 March. Other certifications can be done on 'Exchange up to 31 March'. However, as that is the Easter Bank Holiday weekend we suggest schemes should work towards close of play on 29 March. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 14 Feb 2018 00:00:00 Z<![CDATA[Lynette Lewis ]]><![CDATA[ The Pension Protection Fund (PPF) published new forms of contingent asset agreements in January along with new contingent asset guidance. It follows its publication of a final determination and levy policy statement in December for the levy year 2018/19. Background The PPF is a lifeboat scheme set up under statute to support pension members whose employers become insolvent and can no longer support their pension schemes. It is funded by way of a levy payable by defined benefit pension schemes which is broadly calculated by reference to the size of the deficit in the scheme and the insolvency risk posed by the employer(s). This insolvency risk can be mitigated by the use of contingent assets (guarantees, charges and letters of credit) provided these are properly registered and certified with the PPF and comply with PPF requirements including the use of specific form documents. New and changed requirements Introduction of a requirement in respect of Type A group company guarantees where certification would result in a levy saving of £100k + for trustees to obtain a guarantor strength report from a professional adviser; New form contingent assets which need to be executed for any new arrangements entered into on or after 18 January 2018; Schemes which currently have either a Type A guarantee or a Type B charge which includes a fixed monetary cap on liability will need to be re-executed in the new form by no later than the start of the 2019/2020 levy year. Implications of main changes Those schemes with contingent assets in place and executed before 18 January 2018 do not need to adopt new forms for this levy year (2018/2019) and should re-certify them as normal if they want to take advantage of any potential levy savings. Those schemes whose certification of a Type A guarantee will result in a levy saving of £100k or more need to obtain a report - a guarantor strength report - from a professional covenant adviser (with input from other professional advisers as appropriate) as soon as possible. The new forms of contingent assets see some quite major changes including more options to be agreed between trustees and guarantors. Although we think these changes provide greater flexibility, our view is that the cost of putting such arrangements into place will increase as trustees and employers (and their lawyers) will have more option to negotiate wording. The guidance is also not particularly clear as to what the PPF will regard as "standard form" going forward, particularly where it has suggested some free form drafting is allowed. What are the main changes to the PPF standard forms? The definition of 'Guaranteed Obligations (Secured lLabilities in a charge) has changed - it now refers to all obligations and liabilities of the employers to the scheme but can be tweaked via additional and optional wording to include either fixed amount or fluctuating caps; The most fundamental change is where parties wish to include a fixed monetary cap on liability. This is now split into two - one pre-insolvency and one post-insolvency. The post- insolvency cap will be the figure taken into account for levy calculation purposes. A pre-insolvency cap cannot be included if the post insolvency one is fluctuating - i.e. is based on either the section 179 liability or the section 75 liability in the scheme. However, parties can choose to include a pre-insolvency cap if they want to where a fixed post-insolvency cap is included. This will result in two caps; Pre-insolvency limits can either be unlimited, at least equal to any post insolvency cap (less any pre-insolvency demands) or re-set annually by reference to total contributions due from employers to the scheme; Clearer wording around the guarantee/charge being for the benefit of future trustees; Removal of the amendment and release criteria (although parties can agree to keep it) and replacement by wording allowing amendments and releases by agreement in writing - in which event the trustees consent must not be unreasonably withheld or delayed. The parties can agree matters that must be considered by the trustees on request of the guarantor/chargor to make any changes - but can remain silent on this point. Our view of the amendments Although we welcome the flexibility the amendment provisions allow trustees and guarantors and the ability to set new forms of pre-insolvency caps, agreeing the precise form of document may add additional cost and time in agreeing the document. Additional costs will also be incurred in respect of any registration process required for charge, and in the PPF certification process itself including any new legal opinion(s) needed. We will report on this further once the PPF has released further detail. What do trustees need to do to be able to certify a 'Realisable Recovery'? In order for trustees (and employers) to take advantage of the certification of a Type A group company guarantee, trustees need to certify a fixed monetary amount that a guarantor could meet if demand was made by the trustees - the 'Realisable Recovery'. This means they should certify the lower of: any fixed post-insolvency cap and an amount that the trustees are reasonably satisfied that the guarantor(s) could meet if called upon to do so having taken account of the likely impact of the immediate insolvency of the relevant employers (other than any guarantor which is also an employer). In other words, trustees need to be comfortable that the guarantor could meet this amount and must take proportionate steps to assess the capability of the guarantor to do so It is also now possible (but not compulsory) to certify different realisable recovery amounts for different guarantors by submitting separate contingent asset certificates. What about where the levy saving will (or could) be more than £100K? A new requirement has been introduced requiring trustees to certify that they have obtained an independent covenant assessment in respect of the guarantor (and provide a copy to the PPF by 5pm on 29 March 2018). This needs to be prepared by a professional adviser and be capable of being replied upon by the PPF and meet other criteria set out in the PPF guidance. Helpfully, where the guarantor strength report is consistent (in the opinion of the PPF) with its guidance, the risk reduction test will be deemed to be met and the guarantee taken into account for the purposes of calculation of the levy. While the PPF is not completely prescriptive in the factors which must be included in the report, it has set out a long list which it expects to be included (and expects an explanation where the professional adviser considers them irrelevant). What happens if no guarantor strength report is obtained and the levy saving is more than £100k? Where a report is required but not obtained, the default position is that the guarantee will be rejected by the PPF. However, the PPF has discretion to allow trustees to submit further information to support the 'Realisable Recovery'. It is more likely to exercise this discretion where the trustees had obtained an estimate that the levy saving would be less than £100k and the trustees reasonably believed that would be the case. Where a scheme identifies that it is close to the £100,000 threshold, we advise that a guarantor strength report is obtained to avoid any question of the guarantee not being accepted for levy reduction purposes. Timings As noted above, certification and re-certifications need to be completed by the end of the current levy year. This year that means that where hard copy documents need to be sent to the PPF for new certifications or re-certifications where either a guarantor strength report is required or a new valuation of property has to be produced, the deadline is 5pm on Thursday, 29 March. Other certifications can be done on 'Exchange up to 31 March'. However, as that is the Easter Bank Holiday weekend we suggest schemes should work towards close of play on 29 March. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{8A3C2A63-8C54-4CCA-86CC-299B73D5270D}https://www.shoosmiths.co.uk/client-resources/legal-updates/occupational-pension-schemes-trusts-regulations-2018-13681.aspxOccupational Pension Schemes (Master Trusts) Regulations 2018 The DWP has issued a consultation document on Regulations introducing an authorisation and a supervisory regime in relation to Master Trusts. A Master Trust is a type of occupational pension scheme used by more than one employer providing money purchase benefits (either alone or with other benefits) but where the employers are not connected. Following the introduction of auto enrolment there has been a huge increase in Master Trust membership. This has arisen from around 0.2 million in 2010 to 7.1 million in 2016. The Pensions Regulator among others have raised concerns around the governance of Master Trusts particularly smaller Master Trusts and this saw the introduction of the Master Trust assurance framework in 2014. The aim behind introducing the authorisation and supervisory regime is as follows: so that members of Master Trusts have equivalent protection to other types of pension scheme; so that the risks specific to Master Trusts are proportionally and proactively regulated; to strike a balance between preventing risks occurring and giving the Pensions Regulator power to intervene. Under the proposed regulations, Master Trusts will be required to meet the following criteria: persons involved in the scheme are fit and proper; the scheme is financially sustainable; each scheme funder meets specific requirements; systems and processes are used in running the scheme are sufficient to ensure that it is run efficiently; the scheme has adequate continuity strategy. The Pension Schemes Act 2017 says that employers are connected if they are or they have been part of a group undertaking as defined in Section 1161(5) of the Companies Act 2006. Draft regulations also set out other ways in which employers may be considered as connected. This includes the situation where an employer participates in a Pension Scheme for a temporary period following a corporate transaction. The consultation document confirms that industry wide and not profit schemes would still be caught within the definition of Master Trust. Existing Trusts must apply to the Pensions Regulator for authorisation from October 2018. If the existing Scheme does not apply or authorisation is declined then the Scheme must wind up and exit the market. Once Schemes are authorised the Pensions Regulator will maintain a supervisory role to ensure that the Scheme continues to meet the authorisation criteria. Schemes established after October 2018 must apply and be authorised before they can operate. There will be an application fee for authorisation. This is intended to be a flat fee for new schemes. It will be no more than £24,000 and for transitional schemes it will be no more than £67,000. The exact amount is to be determined but there is already concern that this will price existing smaller Master Trusts out of the market. Mastertrusts will be required to meet the following conditions: Persons involved in the Scheme are "fit and proper" The fit and proper requirements build on existing regulatory requirements which apply, for example, the requirements around Trustee knowledge and understanding, FCA rules and also money purchase government requirements including the requirements to obtain a share statement. The draft regulations create three tests: Integrity, Conduct, Competency. Financial Sustainability The scheme must be 'financially sustainable'. This will mean that the Pensions Regulator must be satisfied that the Scheme has a sound business strategy and that the Scheme has sufficient financial resources to meet the costs of setting up and running a master trust and the cost of resolving an event which have a significant impact on the master-trust's ability to operate (known as a triggering event) which could include the associated cost of winding up the scheme. The scheme strategist (the person responsible for making business decisions in relation to the Scheme) will be required to submit a business plan to the Pensions Regulator. Scheme funder requirements The Scheme Funder is the person responsible for funding the Master Trusts where administration charges are not enough to cover costs or someone who can receive a profit where the income from the Master Trust exceeds the expenditure. There is no expressed legal requirement to have a Scheme funder but it is likely that in most Master Trusts there will be such a person. Where there is a Scheme funder, certain requirements around the legal status of the funder and the activities it carries out will need to be met. System and processes The Pensions Regulator must be satisfied that systems and processes used in running the Scheme are sufficient. Satisfaction of the existing master trust assurance framework will not automatically mean that a scheme will then meet all the new regulatory requirements. It may mean that a lot of the information will already have been collated. Continuity Strategy Master Trusts are required to have a strategy prepared by the scheme strategist which sets out how members will be protected if a triggering event occurs. This also governs the administration charges which would apply in such a scenario. Once a trigger event has occurred the Master Trust must submit a statement of charges and must not introduce new charges or increase any charges unless and until the trigger event is resolved. In terms of control and ongoing monitoring the Pensions Regulator will have a supervisory function. The Pensions Regulator will be consulting on its code of Practice and will publish operational guidance applicable to Master Trusts. Additionally, a supervisory return will need to be submitted to the Pensions Regulator and significant events affecting the Master Trust will also be notified to the Pensions Regulator. The consultation will run until 12 January 2018. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 28 Dec 2017 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ The DWP has issued a consultation document on Regulations introducing an authorisation and a supervisory regime in relation to Master Trusts. A Master Trust is a type of occupational pension scheme used by more than one employer providing money purchase benefits (either alone or with other benefits) but where the employers are not connected. Following the introduction of auto enrolment there has been a huge increase in Master Trust membership. This has arisen from around 0.2 million in 2010 to 7.1 million in 2016. The Pensions Regulator among others have raised concerns around the governance of Master Trusts particularly smaller Master Trusts and this saw the introduction of the Master Trust assurance framework in 2014. The aim behind introducing the authorisation and supervisory regime is as follows: so that members of Master Trusts have equivalent protection to other types of pension scheme; so that the risks specific to Master Trusts are proportionally and proactively regulated; to strike a balance between preventing risks occurring and giving the Pensions Regulator power to intervene. Under the proposed regulations, Master Trusts will be required to meet the following criteria: persons involved in the scheme are fit and proper; the scheme is financially sustainable; each scheme funder meets specific requirements; systems and processes are used in running the scheme are sufficient to ensure that it is run efficiently; the scheme has adequate continuity strategy. The Pension Schemes Act 2017 says that employers are connected if they are or they have been part of a group undertaking as defined in Section 1161(5) of the Companies Act 2006. Draft regulations also set out other ways in which employers may be considered as connected. This includes the situation where an employer participates in a Pension Scheme for a temporary period following a corporate transaction. The consultation document confirms that industry wide and not profit schemes would still be caught within the definition of Master Trust. Existing Trusts must apply to the Pensions Regulator for authorisation from October 2018. If the existing Scheme does not apply or authorisation is declined then the Scheme must wind up and exit the market. Once Schemes are authorised the Pensions Regulator will maintain a supervisory role to ensure that the Scheme continues to meet the authorisation criteria. Schemes established after October 2018 must apply and be authorised before they can operate. There will be an application fee for authorisation. This is intended to be a flat fee for new schemes. It will be no more than £24,000 and for transitional schemes it will be no more than £67,000. The exact amount is to be determined but there is already concern that this will price existing smaller Master Trusts out of the market. Mastertrusts will be required to meet the following conditions: Persons involved in the Scheme are "fit and proper" The fit and proper requirements build on existing regulatory requirements which apply, for example, the requirements around Trustee knowledge and understanding, FCA rules and also money purchase government requirements including the requirements to obtain a share statement. The draft regulations create three tests: Integrity, Conduct, Competency. Financial Sustainability The scheme must be 'financially sustainable'. This will mean that the Pensions Regulator must be satisfied that the Scheme has a sound business strategy and that the Scheme has sufficient financial resources to meet the costs of setting up and running a master trust and the cost of resolving an event which have a significant impact on the master-trust's ability to operate (known as a triggering event) which could include the associated cost of winding up the scheme. The scheme strategist (the person responsible for making business decisions in relation to the Scheme) will be required to submit a business plan to the Pensions Regulator. Scheme funder requirements The Scheme Funder is the person responsible for funding the Master Trusts where administration charges are not enough to cover costs or someone who can receive a profit where the income from the Master Trust exceeds the expenditure. There is no expressed legal requirement to have a Scheme funder but it is likely that in most Master Trusts there will be such a person. Where there is a Scheme funder, certain requirements around the legal status of the funder and the activities it carries out will need to be met. System and processes The Pensions Regulator must be satisfied that systems and processes used in running the Scheme are sufficient. Satisfaction of the existing master trust assurance framework will not automatically mean that a scheme will then meet all the new regulatory requirements. It may mean that a lot of the information will already have been collated. Continuity Strategy Master Trusts are required to have a strategy prepared by the scheme strategist which sets out how members will be protected if a triggering event occurs. This also governs the administration charges which would apply in such a scenario. Once a trigger event has occurred the Master Trust must submit a statement of charges and must not introduce new charges or increase any charges unless and until the trigger event is resolved. In terms of control and ongoing monitoring the Pensions Regulator will have a supervisory function. The Pensions Regulator will be consulting on its code of Practice and will publish operational guidance applicable to Master Trusts. Additionally, a supervisory return will need to be submitted to the Pensions Regulator and significant events affecting the Master Trust will also be notified to the Pensions Regulator. The consultation will run until 12 January 2018. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{ED0ACF80-2A7E-4AE0-A79E-AAC92AE1D20C}https://www.shoosmiths.co.uk/client-resources/legal-updates/uncertainty-remains-on-retirement-age-equality-13478.aspxUncertainty remains on retirement age equality Over quarter of a century on.the application of equal treatment to retirement ages is still uncertain. The Court of Appeal has ordered a reference to the European Court of Justice (ECJ) in proceedings brought by Safeway regarding the equalisation of normal retirement ages (NRAs) in its final salary pension scheme, the Safeway Pension Scheme (the Safeway Scheme). Background - equalisation of NRAs Since the judgment in Barber Guardian Royal Exchange Assurance Group [1991] 1 QB 344 (Barber) in May 1990, it has been known that the principle of equal pay for men and women applies to UK occupational pension schemes. This means that since 17 May 1990, schemes have been required to operate the same NRA for men and women. At that time, many schemes had an NRA of 65 for men and 60 for women and, unless steps were taken properly to amend schemes, benefits have been 'levelled-up' requiring an NRA of 60 for both men and women. Many schemes took steps in the early 1990s therefore to 'level-down' benefits to provide for an NRA of 65 for both men and women. However, some schemes have later found that the steps they took were ineffective and that scheme liabilities are significantly greater than they had thought. Background - attempts to equalise NRAs within the Safeway Scheme The Safeway Scheme had an NRA of 65 for men and 60 for women. Following Barber, it issued an announcement to members in September 1991 (the Announcement) indicating that NRAs for men and women would be equalised at 65 with effect from 1 December 1991. A further announcement was issued to members on 1 December 1991 confirming the same. However, no changes were made to the Safeway Scheme's formal governing documents until May 1996, when a replacement definitive trust deed was adopted (the 1996 Deed). The Safeway Scheme's amendment power provided that: 'The Principal Company may at any time and from time to time with the consent of the Trustees by Supplemental Deed executed by the Principal Company and the Trustees alter or add to any of the trusts powers and provisions of the Scheme. and may exercise such powers so as to take effect from a date specified in the Supplemental Deed which may be the date of such Deed or the date of any prior written announcement to members of the alteration or addition or a date occurring at any reasonable time previous or subsequent to the date of such Deed so as to give the amendment or addition retrospective or future effect as the case may be.' The High Court held that the amendment power required amendments to the Safeway Scheme to be made by deed. As such, it was held that the Announcement did not equalise NRAs. Further, the court considered that a retrospective amendment to equalise NRAs breached the principle of equal treatment and, therefore, the 1996 Deed was not effective to equalise NRAs retrospectively notwithstanding the explicit power in the amendment power. Safeway appealed to the Court of Appeal. Court of Appeal's judgment Two key questions were considered by the Court of Appeal: Could the amendment power be exercised by announcement only? The Court of Appeal held that the amendment power could be exercised only by deed. It noted that the first part of the amendment power refers to a single method by which a change could be made, being by deed. The second part of the amendment power refers to when amendments can take effect. It considered that to interpret the amendment power to allow the Safeway Scheme to be amended by announcement would strain the objective meaning of the words of the power. Secondly, is the power to amend retrospectively prohibited by the principle of equal treatment? Unlike the High Court, the Court of Appeal was not persuaded that the principle of equal treatment prevented an amendment which retrospectively 'levelled-down' NRAs to 65 for both men and women. The Court of Appeal commented that the ECJ ought to consider whether, in a case like this where there is an undoubted power to 'level-down' benefits retrospectively, this is restricted by EU law and the principle of equal treatment. Conclusion The reference to the ECJ by the Court of Appeal has come as a surprise to many in the pensions industry, as many considered it firmly established that EU law prohibited equalisation of NRAs retrospectively, notwithstanding any express power in a scheme's amendment power. Many pension schemes in similar scenarios may have already made a decision that attempts to equalise NRAs retrospectively were ineffective. As such, both pension practitioners and pension schemes in a similar position to the Safeway Scheme will eagerly await the ECJ's decision on this matter. However, the key will be in the detail of a particular scheme's amendment power which, as ever, will require close analysis. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 30 Oct 2017 00:00:00 Z<![CDATA[Suzanne Burrell Alexandra Ventham ]]><![CDATA[ Over quarter of a century on.the application of equal treatment to retirement ages is still uncertain. The Court of Appeal has ordered a reference to the European Court of Justice (ECJ) in proceedings brought by Safeway regarding the equalisation of normal retirement ages (NRAs) in its final salary pension scheme, the Safeway Pension Scheme (the Safeway Scheme). Background - equalisation of NRAs Since the judgment in Barber Guardian Royal Exchange Assurance Group [1991] 1 QB 344 (Barber) in May 1990, it has been known that the principle of equal pay for men and women applies to UK occupational pension schemes. This means that since 17 May 1990, schemes have been required to operate the same NRA for men and women. At that time, many schemes had an NRA of 65 for men and 60 for women and, unless steps were taken properly to amend schemes, benefits have been 'levelled-up' requiring an NRA of 60 for both men and women. Many schemes took steps in the early 1990s therefore to 'level-down' benefits to provide for an NRA of 65 for both men and women. However, some schemes have later found that the steps they took were ineffective and that scheme liabilities are significantly greater than they had thought. Background - attempts to equalise NRAs within the Safeway Scheme The Safeway Scheme had an NRA of 65 for men and 60 for women. Following Barber, it issued an announcement to members in September 1991 (the Announcement) indicating that NRAs for men and women would be equalised at 65 with effect from 1 December 1991. A further announcement was issued to members on 1 December 1991 confirming the same. However, no changes were made to the Safeway Scheme's formal governing documents until May 1996, when a replacement definitive trust deed was adopted (the 1996 Deed). The Safeway Scheme's amendment power provided that: 'The Principal Company may at any time and from time to time with the consent of the Trustees by Supplemental Deed executed by the Principal Company and the Trustees alter or add to any of the trusts powers and provisions of the Scheme. and may exercise such powers so as to take effect from a date specified in the Supplemental Deed which may be the date of such Deed or the date of any prior written announcement to members of the alteration or addition or a date occurring at any reasonable time previous or subsequent to the date of such Deed so as to give the amendment or addition retrospective or future effect as the case may be.' The High Court held that the amendment power required amendments to the Safeway Scheme to be made by deed. As such, it was held that the Announcement did not equalise NRAs. Further, the court considered that a retrospective amendment to equalise NRAs breached the principle of equal treatment and, therefore, the 1996 Deed was not effective to equalise NRAs retrospectively notwithstanding the explicit power in the amendment power. Safeway appealed to the Court of Appeal. Court of Appeal's judgment Two key questions were considered by the Court of Appeal: Could the amendment power be exercised by announcement only? The Court of Appeal held that the amendment power could be exercised only by deed. It noted that the first part of the amendment power refers to a single method by which a change could be made, being by deed. The second part of the amendment power refers to when amendments can take effect. It considered that to interpret the amendment power to allow the Safeway Scheme to be amended by announcement would strain the objective meaning of the words of the power. Secondly, is the power to amend retrospectively prohibited by the principle of equal treatment? Unlike the High Court, the Court of Appeal was not persuaded that the principle of equal treatment prevented an amendment which retrospectively 'levelled-down' NRAs to 65 for both men and women. The Court of Appeal commented that the ECJ ought to consider whether, in a case like this where there is an undoubted power to 'level-down' benefits retrospectively, this is restricted by EU law and the principle of equal treatment. Conclusion The reference to the ECJ by the Court of Appeal has come as a surprise to many in the pensions industry, as many considered it firmly established that EU law prohibited equalisation of NRAs retrospectively, notwithstanding any express power in a scheme's amendment power. Many pension schemes in similar scenarios may have already made a decision that attempts to equalise NRAs retrospectively were ineffective. As such, both pension practitioners and pension schemes in a similar position to the Safeway Scheme will eagerly await the ECJ's decision on this matter. However, the key will be in the detail of a particular scheme's amendment power which, as ever, will require close analysis. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{63E86566-39E7-4BBA-A655-0AB60E092D76}https://www.shoosmiths.co.uk/client-resources/legal-updates/pensions-hmrc-guidance-trust-registration-service-13453.aspxOccupational Pensions: HMRC guidance on trust registration service The Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payers) Regulations 2017 (2017/692): Occupational Pension Schemes and HMRC's Trust Register The Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payers) Regulations 2017 (2017/692) came into force on 26 June 2017. The Regulations require the Trustees of an express trust that incurs relevant tax liabilities to register the trust with HMRC. This raises questions on whether an occupational pension scheme is an express trust within the legislation and must therefore submit details to HMRC's online trust registration service. HMRC has now published guidance on registration including a section providing guidance to occupational pension schemes. HMRC online trust register The obligation to register via the online registration service applies to an occupational pension scheme to the extent that the pension scheme pays 'relevant UK tax'. Relevant UK tax comprises: Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax, Stamp Duty Reserve Tax, Land and Buildings Transfer Tax (Scotland). HMRC's guidance confirms that relevant UK tax will not include situations where the Scheme Administrator/ Trustees has to pay UK income tax because of the following situations: Where the Trustees are severally liable with the Member for lifetime allowance charges; Where the Scheme pays the Member's annual allowance charge (Scheme pays); Where the Scheme is liable to certain charges under the Finance Act 2004 such as an unauthorised payment charge. Therefore if the pension scheme is not subject to relevant UK tax in any particular tax year, then there is no need to register. HMRC, in its guidance, says that it expects most registered Pension Schemes to be express trusts but not taxable relevant trusts. Record-keeping requirements Legislation also sets out additional record keeping requirements which apply even if there is no requirement to register on HMRC's trust register. Accurate and up to date written records of all beneficial owners must be maintained by trustees. Given that trustees are required to maintain information as part of their general obligation as trustees of occupational pension schemes, this should not represent a significant additional burden on trustees. Beneficial owners of a pension trust are usually the sponsoring employer, the trustees and the members of the pension scheme. In the case of members, it is recognised that it may not be possible to identify all individual beneficial owners and where there is a class of beneficiaries, HMRC confirms that it is acceptable to provide a description of the class of persons who are beneficiaries or potential beneficiaries of the trust. In relation to the scheme sponsor, it is common for this to have changed over time. Any obligation to provide details of the trust settlor should include the original employer who established the Scheme. If the original employer is no longer involved in the Scheme, then the current participating employers should be listed. This obligation only arises if there is a requirement to register on HMRC's Trust Register. In terms of next steps, these should be limited. However, trustees should be aware of the new requirements in case they become subject to relevant UK tax and therefore trigger the requirements. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.Tue, 24 Oct 2017 00:00:00 +0100<![CDATA[Suzanne Burrell Kunjan Sembhi ]]><![CDATA[ The Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payers) Regulations 2017 (2017/692): Occupational Pension Schemes and HMRC's Trust Register The Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payers) Regulations 2017 (2017/692) came into force on 26 June 2017. The Regulations require the Trustees of an express trust that incurs relevant tax liabilities to register the trust with HMRC. This raises questions on whether an occupational pension scheme is an express trust within the legislation and must therefore submit details to HMRC's online trust registration service. HMRC has now published guidance on registration including a section providing guidance to occupational pension schemes. HMRC online trust register The obligation to register via the online registration service applies to an occupational pension scheme to the extent that the pension scheme pays 'relevant UK tax'. Relevant UK tax comprises: Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax, Stamp Duty Reserve Tax, Land and Buildings Transfer Tax (Scotland). HMRC's guidance confirms that relevant UK tax will not include situations where the Scheme Administrator/ Trustees has to pay UK income tax because of the following situations: Where the Trustees are severally liable with the Member for lifetime allowance charges; Where the Scheme pays the Member's annual allowance charge (Scheme pays); Where the Scheme is liable to certain charges under the Finance Act 2004 such as an unauthorised payment charge. Therefore if the pension scheme is not subject to relevant UK tax in any particular tax year, then there is no need to register. HMRC, in its guidance, says that it expects most registered Pension Schemes to be express trusts but not taxable relevant trusts. Record-keeping requirements Legislation also sets out additional record keeping requirements which apply even if there is no requirement to register on HMRC's trust register. Accurate and up to date written records of all beneficial owners must be maintained by trustees. Given that trustees are required to maintain information as part of their general obligation as trustees of occupational pension schemes, this should not represent a significant additional burden on trustees. Beneficial owners of a pension trust are usually the sponsoring employer, the trustees and the members of the pension scheme. In the case of members, it is recognised that it may not be possible to identify all individual beneficial owners and where there is a class of beneficiaries, HMRC confirms that it is acceptable to provide a description of the class of persons who are beneficiaries or potential beneficiaries of the trust. In relation to the scheme sponsor, it is common for this to have changed over time. Any obligation to provide details of the trust settlor should include the original employer who established the Scheme. If the original employer is no longer involved in the Scheme, then the current participating employers should be listed. This obligation only arises if there is a requirement to register on HMRC's Trust Register. In terms of next steps, these should be limited. However, trustees should be aware of the new requirements in case they become subject to relevant UK tax and therefore trigger the requirements. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.]]>{1D895D18-1847-4E9F-9E36-F58340C7C4DC}https://www.shoosmiths.co.uk/news/press-releases/first-pensions-hire-for-shoosmiths-birmingham-office-13321.aspxFirst pensions hire for Shoosmiths&#39; Birmingham office National law firm Shoosmiths has hired its first pensions partner in Birmingham to boost its national team. Download hi-res image Head of Pensions David Thompson with Lynette Lewis Lynette Lewis has joined the firm as a partner from Eversheds Sutherland, and brings nine years' experience as a pensions lawyer and a further 10 as a corporate lawyer. Shoosmiths partner and head of pensions at Shoosmiths, David Thompson, said Lewis had first-rate experience of advising both corporate and pension trustee clients, and her recruitment would complement the firm's pension offering. "The Birmingham and wider Midlands pensions market is substantial. We have not previously had pensions lawyers based here, and very much look forward to working with Lynette who is a well-known go-to adviser in the region and beyond," he added. "It is part of the team's strategic ambition to grow our capabilities in the Midlands and Lynette's appointment will provide us with the opportunity to do so." Lynette added: "I'm delighted to be joining Shoosmiths and it is exciting to be the first pensions partner based in the Birmingham office. I look forward to making my mark in the national team and collaborating with David and other colleagues in the commercial practice group to grow the offering in the Midlands." Shoosmiths' pensions team now has six partners and advises in relation to more than 200 occupational pension schemes, ranging from £1m to nearly £2bn in size. The team advises a broad variety of schemes, including defined benefit (both final salary and career average), defined contribution and hybrid schemes, acting for both trustees and sponsoring employers. The team acts on a wide range of projects, including scheme closures and mergers, liability management projects and dealing with The Pensions Regulator, in addition to providing day-to-day advice. The firm also has a specialist pensions disputes team. Wed, 20 Sep 2017 00:00:00 +0100<![CDATA[David Thompson ]]><![CDATA[ National law firm Shoosmiths has hired its first pensions partner in Birmingham to boost its national team. Download hi-res image Head of Pensions David Thompson with Lynette Lewis Lynette Lewis has joined the firm as a partner from Eversheds Sutherland, and brings nine years' experience as a pensions lawyer and a further 10 as a corporate lawyer. Shoosmiths partner and head of pensions at Shoosmiths, David Thompson, said Lewis had first-rate experience of advising both corporate and pension trustee clients, and her recruitment would complement the firm's pension offering. "The Birmingham and wider Midlands pensions market is substantial. We have not previously had pensions lawyers based here, and very much look forward to working with Lynette who is a well-known go-to adviser in the region and beyond," he added. "It is part of the team's strategic ambition to grow our capabilities in the Midlands and Lynette's appointment will provide us with the opportunity to do so." Lynette added: "I'm delighted to be joining Shoosmiths and it is exciting to be the first pensions partner based in the Birmingham office. I look forward to making my mark in the national team and collaborating with David and other colleagues in the commercial practice group to grow the offering in the Midlands." Shoosmiths' pensions team now has six partners and advises in relation to more than 200 occupational pension schemes, ranging from £1m to nearly £2bn in size. The team advises a broad variety of schemes, including defined benefit (both final salary and career average), defined contribution and hybrid schemes, acting for both trustees and sponsoring employers. The team acts on a wide range of projects, including scheme closures and mergers, liability management projects and dealing with The Pensions Regulator, in addition to providing day-to-day advice. The firm also has a specialist pensions disputes team. ]]>{87A7B879-305D-4839-B8A8-FBC06EC96C96}https://www.shoosmiths.co.uk/client-resources/legal-updates/pension-scheme-benefit-amendments-and-expectation-13289.aspxOccupational Pension Schemes: benefit amendments and reasonable expectations The recent Court of Appeal decisions in IBM United Kingdom Holdings Ltd and another v Dalgleish and others and Bradbury v BBC give some clarity and comfort to employers who are considering making changes to schemes that they sponsor. In Bradbury v BBC, the employer was seeking to reduce the scheme's deficit through changes to future accruals, giving members the choice of: Opting out of the scheme and joining a defined contribution scheme; Opting out of their current final salary section of the scheme and moving to a newly set up career average section; or Remaining in the final salary section but with a cap on the amount of any future pay increases which would count as Basic (pensionable) Salary. The Court of Appeal, dismissing Mr Bradbury's appeal, held that Mr Bradbury had no contractual right to future pay increases. It concluded that the BBC was entitled, on a proper construction of the definition of Basic Salary in the BBC pension scheme rules, to limit the amount of any increase that would count as Basic Salary. The Court of Appeal also agreed with the earlier finding by the High Court that the BBC had not breached its implied duty of trust and confidence nor had it acted irrationally or perversely, The BBC's conduct had to be assessed 'against the reality of the background that the [BBC] was faced with a multi-billion pound deficit in the Scheme.', and it was clear that some action was required. In reaching its decision to dismiss Mr Bradbury's appeal, the Court did not need to consider the question that had been put to it as to whether the Cap was a breach of section 91 of the Pensions Act 1995. Mr Bradbury argued that section 91 protected his accrued rights as well as his future rights on the basis he had an existing right to a future pension based on his final pay. The question was considered, however, with Lady Justice Gloster noting: 'Section 91 protects the actual, accrued rights of employees. It applies where a person 'has a right to a future pension'; it does not apply where a person may acquire a future right to a pension, as a result of a future increase in Basic Salary; i.e. to have a future pay increase. This analysis is supported by the decision of this court in International Management Group (UK) Ltd v German [2011] ICR 329 at [27]-[28]' (Paragraph 45) The change that the BBC was asking employees to make was to their contract of employment rather than to their pension provision, meaning that there was no breach of section 91. In IBM United Kingdom Holdings Ltd and another v Dalgleish and others proposals relating to two IBM pension schemes were made by IBM. The proposals included: closure to future accrual, new early retirement policies, making future pay increases non-pensionable and an option for active members to transfer to a new scheme. A challenge was brought as to whether the employer, in carrying out these proposals, breached its implied contractual duty of good faith (described as the Imperial duty of good faith). The High Court concluded that IBM had breached both its implied duty of good faith and its duty of trust and confidence. In reaching the decision that IBM had breached its implied duty of good faith, the High Court placed a significant amount of weight on the reasonable expectations of the scheme's members. Warren J concluded that reasonable expectations meant expectations of what would happen in the future engendered by an employer's own actions. Warren J said that disappointment of reasonable expectations was a 'very serious matter going to the heart of the relationship' of employer and employee. In addition, Warren J found that in giving members the choice between signing a non-pensionability agreement regarding pay increases and not receiving a pay increase, IBM was in breach of its implied contractual duty of trust and confidence. The Court of Appeal allowed IBM's appeal, holding that the correct test is a 'rationality test' equivalent to the Wednesbury test. The first question to be decided is whether only relevant and no irrelevant matters have been considered, and then whether the result could be considered perverse. When taking this approach the reasonable expectations of members are a relevant factor, but not an overriding one. There was no allegation in the case that relevant factors had been left out or that irrelevant factors had been considered. Therefore the question before the Court was whether the decision was one which no rational decision maker could reach. The Court of Appeal concluded that Warren J had placed undue weight on members' reasonable expectations above the other relevant factors. Although Members' expectations were a relevant factor which a decision maker may, and where appropriate should, take into consideration in the course of its decision making process, it was erroneous to elevate reasonable expectations to a status over and above other relevant factors. Members also brought a complaint that there was a defect in the way in which the consultation process had been conducted. Warren J had held that IBM had acted in breach of the Consultation Regulations, specifically: Failure to make it clear that the drive behind Project Waltz was the 2010 Earnings Per Share targets; Failure to provide information requested by the Pensions Consultation Committee; The Intended Closure Date was deliberately mis-stated; and Consultation was not undertaken with an open mind - the Employers' minds had been made up before the process began. IBM's position was that remedies available in the Consultation Regulations should apply and nothing more. Warren J had held that the Consultation Regulations did not preclude a claim based on a breach of contractual duty of good faith and therefore ordinary contractual remedies were available. On appeal to the Court of Appeal, the representative beneficiaries also tried to claim that the failure to consult properly breached the Employer's Imperial duty of good faith and that an injunction should be awarded requiring IBM to conduct the consultation properly. The Court of Appeal held that an injuction would be too radical a requirement as it would require the unravelling of the Pensions Reorganisation project, Project Waltz. Instead the Court of Appeal held that the representative beneficiaries were entitled to bring a claim for damages for breach of the contractual duty in the conduct of the consultation. It is understood that this decision will not be appealed. While both judgements provide useful guidance and a degree of comfort to sponsoring employers making or planning changes to schemes, much still turns on the specific wording of a scheme's rules and the prevailing circumstances. The case also highlights the importance of conducting proper and meaningful consultation on any changes an employer is considering implementing. Employers should ensure they discuss any planned changes with their legal advisors to understand and manage the risks. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 13 Sep 2017 00:00:00 +0100<![CDATA[Suzanne Burrell ]]><![CDATA[ The recent Court of Appeal decisions in IBM United Kingdom Holdings Ltd and another v Dalgleish and others and Bradbury v BBC give some clarity and comfort to employers who are considering making changes to schemes that they sponsor. In Bradbury v BBC, the employer was seeking to reduce the scheme's deficit through changes to future accruals, giving members the choice of: Opting out of the scheme and joining a defined contribution scheme; Opting out of their current final salary section of the scheme and moving to a newly set up career average section; or Remaining in the final salary section but with a cap on the amount of any future pay increases which would count as Basic (pensionable) Salary. The Court of Appeal, dismissing Mr Bradbury's appeal, held that Mr Bradbury had no contractual right to future pay increases. It concluded that the BBC was entitled, on a proper construction of the definition of Basic Salary in the BBC pension scheme rules, to limit the amount of any increase that would count as Basic Salary. The Court of Appeal also agreed with the earlier finding by the High Court that the BBC had not breached its implied duty of trust and confidence nor had it acted irrationally or perversely, The BBC's conduct had to be assessed 'against the reality of the background that the [BBC] was faced with a multi-billion pound deficit in the Scheme.', and it was clear that some action was required. In reaching its decision to dismiss Mr Bradbury's appeal, the Court did not need to consider the question that had been put to it as to whether the Cap was a breach of section 91 of the Pensions Act 1995. Mr Bradbury argued that section 91 protected his accrued rights as well as his future rights on the basis he had an existing right to a future pension based on his final pay. The question was considered, however, with Lady Justice Gloster noting: 'Section 91 protects the actual, accrued rights of employees. It applies where a person 'has a right to a future pension'; it does not apply where a person may acquire a future right to a pension, as a result of a future increase in Basic Salary; i.e. to have a future pay increase. This analysis is supported by the decision of this court in International Management Group (UK) Ltd v German [2011] ICR 329 at [27]-[28]' (Paragraph 45) The change that the BBC was asking employees to make was to their contract of employment rather than to their pension provision, meaning that there was no breach of section 91. In IBM United Kingdom Holdings Ltd and another v Dalgleish and others proposals relating to two IBM pension schemes were made by IBM. The proposals included: closure to future accrual, new early retirement policies, making future pay increases non-pensionable and an option for active members to transfer to a new scheme. A challenge was brought as to whether the employer, in carrying out these proposals, breached its implied contractual duty of good faith (described as the Imperial duty of good faith). The High Court concluded that IBM had breached both its implied duty of good faith and its duty of trust and confidence. In reaching the decision that IBM had breached its implied duty of good faith, the High Court placed a significant amount of weight on the reasonable expectations of the scheme's members. Warren J concluded that reasonable expectations meant expectations of what would happen in the future engendered by an employer's own actions. Warren J said that disappointment of reasonable expectations was a 'very serious matter going to the heart of the relationship' of employer and employee. In addition, Warren J found that in giving members the choice between signing a non-pensionability agreement regarding pay increases and not receiving a pay increase, IBM was in breach of its implied contractual duty of trust and confidence. The Court of Appeal allowed IBM's appeal, holding that the correct test is a 'rationality test' equivalent to the Wednesbury test. The first question to be decided is whether only relevant and no irrelevant matters have been considered, and then whether the result could be considered perverse. When taking this approach the reasonable expectations of members are a relevant factor, but not an overriding one. There was no allegation in the case that relevant factors had been left out or that irrelevant factors had been considered. Therefore the question before the Court was whether the decision was one which no rational decision maker could reach. The Court of Appeal concluded that Warren J had placed undue weight on members' reasonable expectations above the other relevant factors. Although Members' expectations were a relevant factor which a decision maker may, and where appropriate should, take into consideration in the course of its decision making process, it was erroneous to elevate reasonable expectations to a status over and above other relevant factors. Members also brought a complaint that there was a defect in the way in which the consultation process had been conducted. Warren J had held that IBM had acted in breach of the Consultation Regulations, specifically: Failure to make it clear that the drive behind Project Waltz was the 2010 Earnings Per Share targets; Failure to provide information requested by the Pensions Consultation Committee; The Intended Closure Date was deliberately mis-stated; and Consultation was not undertaken with an open mind - the Employers' minds had been made up before the process began. IBM's position was that remedies available in the Consultation Regulations should apply and nothing more. Warren J had held that the Consultation Regulations did not preclude a claim based on a breach of contractual duty of good faith and therefore ordinary contractual remedies were available. On appeal to the Court of Appeal, the representative beneficiaries also tried to claim that the failure to consult properly breached the Employer's Imperial duty of good faith and that an injunction should be awarded requiring IBM to conduct the consultation properly. The Court of Appeal held that an injuction would be too radical a requirement as it would require the unravelling of the Pensions Reorganisation project, Project Waltz. Instead the Court of Appeal held that the representative beneficiaries were entitled to bring a claim for damages for breach of the contractual duty in the conduct of the consultation. It is understood that this decision will not be appealed. While both judgements provide useful guidance and a degree of comfort to sponsoring employers making or planning changes to schemes, much still turns on the specific wording of a scheme's rules and the prevailing circumstances. The case also highlights the importance of conducting proper and meaningful consultation on any changes an employer is considering implementing. Employers should ensure they discuss any planned changes with their legal advisors to understand and manage the risks. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{3ED6D07F-C034-4398-A778-B0EB404B45E1}https://www.shoosmiths.co.uk/client-resources/legal-updates/same-sex-marriage-and-pensions-walker-v-innospec-13103.aspxSame sex marriage and pensions - Walker v Innospec The Supreme Court has ruled that benefits for same sex spouses must be provided on the same basis as for opposite sex spouses and that the exemptions contained in the Equality Act 2010 are incompatible with EU law and must therefore be disapplied. Mr Walker had brought a challenge regarding benefits payable to his spouse (under a civil partnership). The benefits payable from his former employer's pension scheme were limited so that only pensionable service after 5 April 2005 would count for the purposes of calculating any survivor's pension for a same sex spouse or civil partner. This meant that if he predeceased him his spouse would receive a pension of around £1,000 per annum as contrasted with a pension of £47,000 per annum if pensionable service before 5 April 2005 was included. The Court of Appeal had concluded that service before 5 December 2005 did not need to be counted. The Court of Appeal found that civil partnership was comparable to marriage but rejected Mr Walker's appeal nonetheless. The Court of Appeal referred to the EU legal principles of 'no retroactivity' and 'future effects'. The principle of 'no retroactivity ' was described by Lewison LJ as prescribing that EU legislation did not have retroactive effect unless, exceptionally, it is clear that the legislator intended this, that the purpose to be achieved requires this and that legitimate expectations of those concerned are duly respected. The Court of Appeal concluded that the principle of no retroactivity meant that the prohibition on discrimination only applied in respect of pensionable service and contributions paid before 2 December 2003 (the deadline for transposition of the Equal Treatment Directive into domestic legislation). The Supreme Court allowed Mr Walker's appeal on the grounds that the temporal limitations contained in the Equality Act were incompatible with EU Law. Lord Kerr concluded that inequality in treatment arises when the entitlement to pension arises. He disagreed with the Court of Appeal's conclusion that the entitlement is 'permanently fixed' as it accrued. The judgement follows the thinking in other recent CJEU cases including Maruko. In Maruko, the CJEU concluded that same sex couples are in a comparable position to married couples and therefore that it is direct discrimination to treat them less favourably. The Supreme Court referred to the Barber judgement, which was limited in application to pensionable service after 17 May 1990. The Barber judgement was described as exceptional in its temporal application and was not regarded as relevant in respect of the Equal Treatment Framework Directive. This is more likely to be an issue for schemes providing pensions on a defined benefits basis. When the legislation on civil partners and then same sex marriage were introduced, many employers introduced death benefits for same sex spouses (including civil partners) so that they were provided on the same basis, without any service limits, as opposite sex spouses' pensions were already provided for. However, some employers will have followed the legislative requirements and limited death benefits for same sex spouses (including civil partners) so that no benefits other than contracted out benefits would be payable in respect of service before 5 December 2005. Employers will need to revisit this and ensure that benefits are provided from their pension arrangements on the same basis for same sex spouses (and civil partners) as it is for opposite-sex spouses. If UK compliance with the Equal Treatment Directive is no longer needed once withdrawal from the EU is complete, then in theory the Equality Act 2010 or parts of it, could be withdrawn as part of the review of legislation taking place within the European Union (Withdrawal) Bill. This will depend on government policy in this area. Equality is not a matter which is simply an EU matter so it would be surprising if the government sought to unravel developments in this area. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 24 Jul 2017 00:00:00 +0100<![CDATA[Suzanne Burrell ]]><![CDATA[ The Supreme Court has ruled that benefits for same sex spouses must be provided on the same basis as for opposite sex spouses and that the exemptions contained in the Equality Act 2010 are incompatible with EU law and must therefore be disapplied. Mr Walker had brought a challenge regarding benefits payable to his spouse (under a civil partnership). The benefits payable from his former employer's pension scheme were limited so that only pensionable service after 5 April 2005 would count for the purposes of calculating any survivor's pension for a same sex spouse or civil partner. This meant that if he predeceased him his spouse would receive a pension of around £1,000 per annum as contrasted with a pension of £47,000 per annum if pensionable service before 5 April 2005 was included. The Court of Appeal had concluded that service before 5 December 2005 did not need to be counted. The Court of Appeal found that civil partnership was comparable to marriage but rejected Mr Walker's appeal nonetheless. The Court of Appeal referred to the EU legal principles of 'no retroactivity' and 'future effects'. The principle of 'no retroactivity ' was described by Lewison LJ as prescribing that EU legislation did not have retroactive effect unless, exceptionally, it is clear that the legislator intended this, that the purpose to be achieved requires this and that legitimate expectations of those concerned are duly respected. The Court of Appeal concluded that the principle of no retroactivity meant that the prohibition on discrimination only applied in respect of pensionable service and contributions paid before 2 December 2003 (the deadline for transposition of the Equal Treatment Directive into domestic legislation). The Supreme Court allowed Mr Walker's appeal on the grounds that the temporal limitations contained in the Equality Act were incompatible with EU Law. Lord Kerr concluded that inequality in treatment arises when the entitlement to pension arises. He disagreed with the Court of Appeal's conclusion that the entitlement is 'permanently fixed' as it accrued. The judgement follows the thinking in other recent CJEU cases including Maruko. In Maruko, the CJEU concluded that same sex couples are in a comparable position to married couples and therefore that it is direct discrimination to treat them less favourably. The Supreme Court referred to the Barber judgement, which was limited in application to pensionable service after 17 May 1990. The Barber judgement was described as exceptional in its temporal application and was not regarded as relevant in respect of the Equal Treatment Framework Directive. This is more likely to be an issue for schemes providing pensions on a defined benefits basis. When the legislation on civil partners and then same sex marriage were introduced, many employers introduced death benefits for same sex spouses (including civil partners) so that they were provided on the same basis, without any service limits, as opposite sex spouses' pensions were already provided for. However, some employers will have followed the legislative requirements and limited death benefits for same sex spouses (including civil partners) so that no benefits other than contracted out benefits would be payable in respect of service before 5 December 2005. Employers will need to revisit this and ensure that benefits are provided from their pension arrangements on the same basis for same sex spouses (and civil partners) as it is for opposite-sex spouses. If UK compliance with the Equal Treatment Directive is no longer needed once withdrawal from the EU is complete, then in theory the Equality Act 2010 or parts of it, could be withdrawn as part of the review of legislation taking place within the European Union (Withdrawal) Bill. This will depend on government policy in this area. Equality is not a matter which is simply an EU matter so it would be surprising if the government sought to unravel developments in this area. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{04D923CD-21E5-4C13-A69D-895279D08302}https://www.shoosmiths.co.uk/news/press-releases/spring-budget-2017-experts-comment-12571.aspxSpring Budget 2017 - Shoosmiths&#39; experts comment Today marked the last Spring Budget and Philip Hammond's first Budget as chancellor. Our legal experts comment on the plans unveiled around technology and connectivity, what more funding in to academia will mean for business, employment practices ('returnships' in particular), and reforms to pensions and tax. Corporate Alastair Peet, corporate partner commented on the opportunities the £270m fund for the tech industry will bring to the UK and to investors: 'The Chancellor's announcement of a £270 million fund to help develop Artificial Intelligence, biotech enterprise and driverless cars will be seen as a welcome boost by start-ups and established companies alike. The announcement can also be taken as an acknowledgement by the government that the UK has considerable talent in the tech industry that warrants sufficient support to develop it. The UK is the world leader for AI start-ups and this has been evidenced by global tech giants snapping up UK-based AI start-ups such as Microsoft buying Touchtype and Apple acquiring VocalIQ. 'It is possible this kind of fund will help to stimulate more venture capital investment too, as money for development means more opportunities for UK-based and overseas investors to invest in new platforms and products. 'This announcement gives assurance to those operating in and around tech that the government is taking seriously all of the opportunities that AI will bring, and is preparing for a more connected country in an increasingly globalised world. Tax Kate Featherstone, tax partner, comments on proposed tax reforms: 'A shake-up of the tax treatment for those who are self-employed or choose to work through a personal service company has been threatened for some time and, in his Spring Budget 2017, Phillip Hammond took steps to address the disparity between the taxation of employees and the self-employed. 'Amendments to the State Pension mean there is now little justification for the self-employed to pay less tax than the employed. While the government are keen to encourage entrepreneurialism and self-employment, they do not want tax savings to be the sole motivation for an individual to choose to be self-employed as opposed to employed. The following changes were therefore announced. The self-employed 'An increase of the main rate of Class 4 National Insurance Contributions from 9% to 10% in April 2018 (and then 11% in April 2019) increases the tax burden on self-employed individuals with profits over £16,250.' Working through a personal service company 'The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018. Those who provide their services through their own personal service company will, from April 2018, have to pay tax on any dividends over £2,000, thereby reducing the tax advantages of providing services in this manner.' Employment Antonia Blackwell, senior associate in the employment team, commented on the chancellor's announcement to support 'returnships': 'Today's budget has limited impact in the sphere of employment law. However, it is encouraging to see the Chancellor recognise the need for individuals to have the opportunity to retrain and upskill at all points in their life. To achieve this the Government has stated its intention to work with business groups and public sector organisations to identify how best to increase the number of returnships, supported by £5 million of new funding. Returnships offer people who have taken lengthy career breaks a clear route back to employment. In addition, as part of its commitment to ensuring public services deliver for everyone, the government has agreed to create a new £5 million centenary fund for projects to celebrate the centenary of voting rights being extended to women for the first time in 1918, such as to educate young people about its significance. Commercial TMC Joe Stephenson, senior associate in the TMC team comments on plans for the UK's digital infrastructure: 'As heavily trailed in the press, this, the final spring budget, introduces a raft of measures intended to boost Britain's public and private engagement in digital infrastructure. 'In a Budget characterised by cautious spending, the Chancellor's announcement of a £270 million fund to support development of AI, biotech enterprise and driverless cars is a clear indication of government focus on a high-tech and connected post-Brexit British economy. 'In a nod to the National Infrastructure Commission's Connected Future report, the Budget also includes details of: UK government-backed fibre and 5G trials, including preparedness across Britain's roads, railways and city centres; aggressive promises in relation to digital connectivity across the United Kingdom, including a £200 million fund for fibre broadband projects; new funding to support STEM subjects at university level, including a £300 million research fund and 1,000 new PhD places; and (predictably) promises of post Brexit openness. 'If this Budget's overriding aim is to demonstrate a Britain strong outside of the EU, the object for digital is a clear message that the United Kingdom remains open for global, tech driven business. A potentially challenging balance to strike. 'Whilst the above demonstrates a strong, tangible prioritisation of digital infrastructure concerns, it is important to interpret all spending in light of the Government's broader deficit reduction objective. As the difficulties surrounding the rural broadband role out have demonstrated, infrastructure spend can often take a backseat in times of political and economic uncertainty.' Shoosmiths commercial partner Andy Brennan, also comments on the chancellors plans to pump more funding in to academia: 'The chancellor has just announced he is allocating £300m to support the brightest research talent, including for 1,000 PhD students in STEM subjects, including maintenance loans for part time undergraduates and doctoral loans in all subjects for the first time. 'These plans signal a firm commitment to extract the very best talent the UK has got to give. It also links in with the government's wider industrial strategy, representing a further commitment to research and innovation and the knowledge economy. 'The long-term aim of giving greater access to higher education at PHD and Doctoral level is to boost the prospect of a thriving economy. Lifelong learning will help more people get higher skilled jobs and will no doubt present greater opportunities for more high growth and technology led businesses to flourish, creating benefits for all.' Pensions Paul Carney, pensions partner at Shoosmiths comments on the chancellor's crack-down tax avoidance and plans surrounding master trusts: Preventing tax avoidance 'The chancellor has announced measures which are intended to prevent tax avoidance through the use of overseas pension schemes/ arrangements. It has been possible to transfer funds from a UK pension scheme to an overseas scheme provided that that scheme is included on a government published list of qualifying recognised overseas pension scheme (QROPS). The intention is to introduce a 25% tax charge on transfers to QROPS and, the government states, the idea is to target '...those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction". Exceptions apply where (let's say) there is a good (i.e. genuine) reason for the transfer so; those seeking to emigrate and take their pension monies with them to their new country should be ok.' Master trusts 'Over the last few years, there has been a growth in the number of and use of master trust pension schemes; master trusts are (as the name indicates) trust-based pension schemes constituted as multi-employer schemes for employers which are not associated with each other. The government has previously expressed concern about the regulation of such schemes and has confirmed that it will change the tax registration process for them. The intention is to make the process for the registration of master trusts consistent with the Pension Regulator's new authorisation and supervision regime.' Wed, 08 Mar 2017 00:00:00 Z<![CDATA[ Today marked the last Spring Budget and Philip Hammond's first Budget as chancellor. Our legal experts comment on the plans unveiled around technology and connectivity, what more funding in to academia will mean for business, employment practices ('returnships' in particular), and reforms to pensions and tax. Corporate Alastair Peet, corporate partner commented on the opportunities the £270m fund for the tech industry will bring to the UK and to investors: 'The Chancellor's announcement of a £270 million fund to help develop Artificial Intelligence, biotech enterprise and driverless cars will be seen as a welcome boost by start-ups and established companies alike. The announcement can also be taken as an acknowledgement by the government that the UK has considerable talent in the tech industry that warrants sufficient support to develop it. The UK is the world leader for AI start-ups and this has been evidenced by global tech giants snapping up UK-based AI start-ups such as Microsoft buying Touchtype and Apple acquiring VocalIQ. 'It is possible this kind of fund will help to stimulate more venture capital investment too, as money for development means more opportunities for UK-based and overseas investors to invest in new platforms and products. 'This announcement gives assurance to those operating in and around tech that the government is taking seriously all of the opportunities that AI will bring, and is preparing for a more connected country in an increasingly globalised world. Tax Kate Featherstone, tax partner, comments on proposed tax reforms: 'A shake-up of the tax treatment for those who are self-employed or choose to work through a personal service company has been threatened for some time and, in his Spring Budget 2017, Phillip Hammond took steps to address the disparity between the taxation of employees and the self-employed. 'Amendments to the State Pension mean there is now little justification for the self-employed to pay less tax than the employed. While the government are keen to encourage entrepreneurialism and self-employment, they do not want tax savings to be the sole motivation for an individual to choose to be self-employed as opposed to employed. The following changes were therefore announced. The self-employed 'An increase of the main rate of Class 4 National Insurance Contributions from 9% to 10% in April 2018 (and then 11% in April 2019) increases the tax burden on self-employed individuals with profits over £16,250.' Working through a personal service company 'The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018. Those who provide their services through their own personal service company will, from April 2018, have to pay tax on any dividends over £2,000, thereby reducing the tax advantages of providing services in this manner.' Employment Antonia Blackwell, senior associate in the employment team, commented on the chancellor's announcement to support 'returnships': 'Today's budget has limited impact in the sphere of employment law. However, it is encouraging to see the Chancellor recognise the need for individuals to have the opportunity to retrain and upskill at all points in their life. To achieve this the Government has stated its intention to work with business groups and public sector organisations to identify how best to increase the number of returnships, supported by £5 million of new funding. Returnships offer people who have taken lengthy career breaks a clear route back to employment. In addition, as part of its commitment to ensuring public services deliver for everyone, the government has agreed to create a new £5 million centenary fund for projects to celebrate the centenary of voting rights being extended to women for the first time in 1918, such as to educate young people about its significance. Commercial TMC Joe Stephenson, senior associate in the TMC team comments on plans for the UK's digital infrastructure: 'As heavily trailed in the press, this, the final spring budget, introduces a raft of measures intended to boost Britain's public and private engagement in digital infrastructure. 'In a Budget characterised by cautious spending, the Chancellor's announcement of a £270 million fund to support development of AI, biotech enterprise and driverless cars is a clear indication of government focus on a high-tech and connected post-Brexit British economy. 'In a nod to the National Infrastructure Commission's Connected Future report, the Budget also includes details of: UK government-backed fibre and 5G trials, including preparedness across Britain's roads, railways and city centres; aggressive promises in relation to digital connectivity across the United Kingdom, including a £200 million fund for fibre broadband projects; new funding to support STEM subjects at university level, including a £300 million research fund and 1,000 new PhD places; and (predictably) promises of post Brexit openness. 'If this Budget's overriding aim is to demonstrate a Britain strong outside of the EU, the object for digital is a clear message that the United Kingdom remains open for global, tech driven business. A potentially challenging balance to strike. 'Whilst the above demonstrates a strong, tangible prioritisation of digital infrastructure concerns, it is important to interpret all spending in light of the Government's broader deficit reduction objective. As the difficulties surrounding the rural broadband role out have demonstrated, infrastructure spend can often take a backseat in times of political and economic uncertainty.' Shoosmiths commercial partner Andy Brennan, also comments on the chancellors plans to pump more funding in to academia: 'The chancellor has just announced he is allocating £300m to support the brightest research talent, including for 1,000 PhD students in STEM subjects, including maintenance loans for part time undergraduates and doctoral loans in all subjects for the first time. 'These plans signal a firm commitment to extract the very best talent the UK has got to give. It also links in with the government's wider industrial strategy, representing a further commitment to research and innovation and the knowledge economy. 'The long-term aim of giving greater access to higher education at PHD and Doctoral level is to boost the prospect of a thriving economy. Lifelong learning will help more people get higher skilled jobs and will no doubt present greater opportunities for more high growth and technology led businesses to flourish, creating benefits for all.' Pensions Paul Carney, pensions partner at Shoosmiths comments on the chancellor's crack-down tax avoidance and plans surrounding master trusts: Preventing tax avoidance 'The chancellor has announced measures which are intended to prevent tax avoidance through the use of overseas pension schemes/ arrangements. It has been possible to transfer funds from a UK pension scheme to an overseas scheme provided that that scheme is included on a government published list of qualifying recognised overseas pension scheme (QROPS). The intention is to introduce a 25% tax charge on transfers to QROPS and, the government states, the idea is to target '...those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction". Exceptions apply where (let's say) there is a good (i.e. genuine) reason for the transfer so; those seeking to emigrate and take their pension monies with them to their new country should be ok.' Master trusts 'Over the last few years, there has been a growth in the number of and use of master trust pension schemes; master trusts are (as the name indicates) trust-based pension schemes constituted as multi-employer schemes for employers which are not associated with each other. The government has previously expressed concern about the regulation of such schemes and has confirmed that it will change the tax registration process for them. The intention is to make the process for the registration of master trusts consistent with the Pension Regulator's new authorisation and supervision regime.' ]]>{9F3F7BAE-4285-475D-AEA1-7FBAFBC22EAF}https://www.shoosmiths.co.uk/client-resources/legal-updates/judicial-pensions-discrimination-who-judges-the-judges-12511.aspxJudicial pensions and discrimination: who judges the judges? The employment tribunal has recently ruled in favour of judges in a challenge to changes to the judicial pension scheme. Background In McLeod and Others -v- the Lord Chancellor and Secretary of State for Justice and Another (ET/2201483/2015) an employment tribunal considered changes made to pension provision for the judiciary introduced in 2015. The existing judicial pension scheme closed in March 2015 and was replaced by the new judicial pension scheme. The new scheme provided a lower level of benefits as follows: lower accrual rate on a career average rather than final salary basis; removal of lump sum entitlement; aligning normal pension age to state pension age; and smaller survivor's pensions. Transitional provisions were introduced meaning that older judges would remain in the existing judicial pension scheme either until their retirement or up to an end of a period of tapered protection. Judges born before 2 April 1957 were therefore unaffected by the changes. Claims were brought by judges on the basis of indirect sex and race discrimination as younger judges were more likely to be female or of an ethnic minority. Claims were also brought on the grounds of age discrimination. The government accepted that changes involved less favourable treatment because of age and that there was a disproportionate impact on female and ethnic minority judges. However, the government's argument was that there was a legitimate aim in implementing the changes namely to protect those closest to retirement from the financial effects of the change in pension. Employment tribunal decision The employment tribunal held that the transitional provisions were not objectively justified. The government had failed to show that treatment of the claimants was a proportionate means of achieving a legitimate aim. In the employment tribunal's view, those closest to retirement would not be most adversely affected by the reforms because they would have accrued a higher level of pension benefits under the old, more generous scheme. The tribunal stated that even if it had accepted the government's aims, it would have concluded that the transitional provisions were not proportionate. The tribunal concluded that, in considering proportionality it was necessary to consider whether the chosen means were appropriate and reasonably necessary to achieve the aim. In this instance the employment tribunal concluded that the transitional period was arbitrary. The transitional provisions were previously recognised as being potentially age discriminatory by the Independent Public Services Commission, set up to examine the reform of public sector pension schemes. The Commission's report (at paragraph 7.34) stated that special protections for members over a certain age should not be necessary. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 20 Feb 2017 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ The employment tribunal has recently ruled in favour of judges in a challenge to changes to the judicial pension scheme. Background In McLeod and Others -v- the Lord Chancellor and Secretary of State for Justice and Another (ET/2201483/2015) an employment tribunal considered changes made to pension provision for the judiciary introduced in 2015. The existing judicial pension scheme closed in March 2015 and was replaced by the new judicial pension scheme. The new scheme provided a lower level of benefits as follows: lower accrual rate on a career average rather than final salary basis; removal of lump sum entitlement; aligning normal pension age to state pension age; and smaller survivor's pensions. Transitional provisions were introduced meaning that older judges would remain in the existing judicial pension scheme either until their retirement or up to an end of a period of tapered protection. Judges born before 2 April 1957 were therefore unaffected by the changes. Claims were brought by judges on the basis of indirect sex and race discrimination as younger judges were more likely to be female or of an ethnic minority. Claims were also brought on the grounds of age discrimination. The government accepted that changes involved less favourable treatment because of age and that there was a disproportionate impact on female and ethnic minority judges. However, the government's argument was that there was a legitimate aim in implementing the changes namely to protect those closest to retirement from the financial effects of the change in pension. Employment tribunal decision The employment tribunal held that the transitional provisions were not objectively justified. The government had failed to show that treatment of the claimants was a proportionate means of achieving a legitimate aim. In the employment tribunal's view, those closest to retirement would not be most adversely affected by the reforms because they would have accrued a higher level of pension benefits under the old, more generous scheme. The tribunal stated that even if it had accepted the government's aims, it would have concluded that the transitional provisions were not proportionate. The tribunal concluded that, in considering proportionality it was necessary to consider whether the chosen means were appropriate and reasonably necessary to achieve the aim. In this instance the employment tribunal concluded that the transitional period was arbitrary. The transitional provisions were previously recognised as being potentially age discriminatory by the Independent Public Services Commission, set up to examine the reform of public sector pension schemes. The Commission's report (at paragraph 7.34) stated that special protections for members over a certain age should not be necessary. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{CA007E5D-087D-4033-A7BE-AF7D9B9879D8}https://www.shoosmiths.co.uk/client-resources/legal-updates/how-trustees-should-use-nomination-forms-12508.aspxHow trustees should use nomination forms On 8 February 2017, the UK Supreme Court gave its unanimous decision in a case which further levels the playing field for unmarried cohabiting couples in the public sector. Background The facts of the case have been widely reported, essentially Ms Brewster, the appellant, had been living with Mr McMullan her partner for around ten years. They had purchased a property together and on Christmas Eve of 2009 the couple became engaged. Sadly, two days later Mr McMullan suddenly died, aged 43. Mr McMullan had been employed by Translink, a public transport operator, and was an active member of the Local Government Pension Scheme ('LGPS' or 'the Scheme') in Northern Ireland which was administered by the Northern Ireland Local Government Officers' Superannuation Committee ('NILGOSC'). At the time, the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2009 (the '2009 Regulations') required that unmarried cohabiting partners prove cohabitation for at least two years and be nominated by their pension scheme member partner in order to receive a survivor's pension. No similar nomination requirement existed for married or civil partner survivors. When Mr McMullan died, NILGOSC declined to pay Ms Brewster a survivor's pension, maintaining that in accordance with the 2009 Regulations, it could not do so without having received a nomination form. Ms Brewster applied for judicial review claiming unlawful discrimination. The High Court of Justice in Northern Ireland held that the requirement of having to nominate a cohabiting partner was, in fact, discriminatory under article 14 of the European Convention on Human Rights ('ECHR') when read together with the right to peaceful enjoyment of possessions under article 1 protocol 1 ('A1P1'). NILGOSC and the Department of the Environment for Northern Ireland ('DENI') appealed against the decision to the Court of Appeal (Northern Ireland) which held the nomination requirement was neither unjustified nor disproportionate, overturning the High Court's decision. In the meantime, prompted by the High Court's decision, the equivalent regulations for LGPS in England and Wales and Scotland were amended removing the difference in treatment between unmarried cohabitees and married / civil partners in claiming a survivor's pension. Not unsurprisingly when Ms Brewster became aware of the amendments made to equivalent regulations, she applied to the Court of Appeal for her case to be re-opened and when refused appealed to the Supreme Court. Supreme Court decision In what is seen as a landmark decision, the Supreme Court unanimously declared that the nomination requirement in the 2009 Regulations be disapplied and that Ms Brewster, as an unmarried cohabitant living with her partner in excess of two years, be entitled to receive a survivor's pension under the Scheme. In their submission, DENI had suggested that the overarching objective behind the inclusion of the nomination requirement was to establish the existence of a cohabiting relationship equivalent to marriage or civil partnership, as well as to identify the express wishes of the scheme member. However, Lord Kerr, in his 26-page judgment, disagreed and explained in detail that the 2009 Regulations already required the surviving partner to establish that a genuine relationship existed, which meant that the nomination requirement added no weight or value to the evidential hurdle; the confirmation of the member's wishes holds no inherent value. Effect and wider impact The Supreme Court's ruling has, as expected, generated a lot of attention in the media but it is questionable what relevance it has for the rights of cohabiting couples with private sector pensions. This is largely because by and large private sector occupational pension schemes provide survivor's benefits for unmarried partners without the need for the additional qualification feature of a nomination form. Accordingly direct application is likely to be relatively rare. However, similar clauses to that considered in this case are not unheard of in the private sector and could be a cause for concern as discriminating between a cohabitant and a married spouse or civil partner. It is also worth noting that the ECHR which was the legislative route for Ms Brewster's claim, is not a route applicable to private sector pension schemes as the rights encompassed in the ECHR cannot be enforced against private parties (individuals or legal entities). For public sector schemes the case is relevant with most such schemes having similar clauses to the Scheme in question. It is to be expected that these schemes will need to revisit past death benefit cases to see whether a cohabitant pension could and should have been paid. Given the size and range of public schemes likely to be affected this could be a lengthy and sizeable task. The focus of any exercise will be the 'importance of the nomination form' in whether a pension was paid or claimed. Cohabitants will still have to meet the other factual tests of having a 'qualifying cohabiting relationship' and showing this many years after the event may not be easy in some cases. As well as public sector schemes, schemes that have come out of the public sector, or were set up to take public sector workers, may retain/have a similar provision, where they have used a public sector scheme as a blueprint mirroring its rules, not just in benefits but also in administration (as part of, for example, fair deal arrangements), could also be affected. Trustees of these arrangements will need to consider their rules in this context and also any continuing contract to which the scheme relates. Comment Clearly it is to be expected that the Treasury and public sector schemes affected will be considering this judgement carefully and in many cases taking action to review past cases possibly affected. Individual members may also now be considering making contact to have their cases reviewed where they are aware or suspect that a claim was refused for the lack of a nomination form. There will also be cases where individuals self-selected and did not claim, aware they did not have that one piece of evidence. Trustees of private sector schemes if in any doubt as to what their rules provide should have these checked to ensure that they are not one of the few schemes that contains similar provisions to those examined in this case. In the future this judgement could form the basis of a challenge to the more commonly used model in the private sector where a cohabitant's pension is determined at the discretion of the trustees. The position in the public sector was a factual test, so if the test could be met there was no discretion involved. Trustees of private sector schemes to exercise their discretion have to consider all the relevant circumstances to establish that a relationship akin to marriage with interdependency exists. It may be that this opens up the possibility for cohabiting members to challenge the discretionary element of their entitlement seeing it as a hurdle that married or civil partners do not have to overcome. Cohabiting remains an undefined concept (there may be pressure to provide more legal direction) and therefore whether or not it is explicitly expressed some form of judgement and discretion is required in order to establish whether a relationship is of a sufficient type to be called a cohabitation. Pension scheme trustees should be versed in using their discretions and the principles under which they can effectively do so. Future challenges are therefore more likely to be on the recognised basis that the trustees have not exercised their discretion appropriately rather than the discretion itself is an inappropriate barrier. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 16 Feb 2017 00:00:00 Z<![CDATA[Heather Chandler Sarah Jenkins ]]><![CDATA[ On 8 February 2017, the UK Supreme Court gave its unanimous decision in a case which further levels the playing field for unmarried cohabiting couples in the public sector. Background The facts of the case have been widely reported, essentially Ms Brewster, the appellant, had been living with Mr McMullan her partner for around ten years. They had purchased a property together and on Christmas Eve of 2009 the couple became engaged. Sadly, two days later Mr McMullan suddenly died, aged 43. Mr McMullan had been employed by Translink, a public transport operator, and was an active member of the Local Government Pension Scheme ('LGPS' or 'the Scheme') in Northern Ireland which was administered by the Northern Ireland Local Government Officers' Superannuation Committee ('NILGOSC'). At the time, the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2009 (the '2009 Regulations') required that unmarried cohabiting partners prove cohabitation for at least two years and be nominated by their pension scheme member partner in order to receive a survivor's pension. No similar nomination requirement existed for married or civil partner survivors. When Mr McMullan died, NILGOSC declined to pay Ms Brewster a survivor's pension, maintaining that in accordance with the 2009 Regulations, it could not do so without having received a nomination form. Ms Brewster applied for judicial review claiming unlawful discrimination. The High Court of Justice in Northern Ireland held that the requirement of having to nominate a cohabiting partner was, in fact, discriminatory under article 14 of the European Convention on Human Rights ('ECHR') when read together with the right to peaceful enjoyment of possessions under article 1 protocol 1 ('A1P1'). NILGOSC and the Department of the Environment for Northern Ireland ('DENI') appealed against the decision to the Court of Appeal (Northern Ireland) which held the nomination requirement was neither unjustified nor disproportionate, overturning the High Court's decision. In the meantime, prompted by the High Court's decision, the equivalent regulations for LGPS in England and Wales and Scotland were amended removing the difference in treatment between unmarried cohabitees and married / civil partners in claiming a survivor's pension. Not unsurprisingly when Ms Brewster became aware of the amendments made to equivalent regulations, she applied to the Court of Appeal for her case to be re-opened and when refused appealed to the Supreme Court. Supreme Court decision In what is seen as a landmark decision, the Supreme Court unanimously declared that the nomination requirement in the 2009 Regulations be disapplied and that Ms Brewster, as an unmarried cohabitant living with her partner in excess of two years, be entitled to receive a survivor's pension under the Scheme. In their submission, DENI had suggested that the overarching objective behind the inclusion of the nomination requirement was to establish the existence of a cohabiting relationship equivalent to marriage or civil partnership, as well as to identify the express wishes of the scheme member. However, Lord Kerr, in his 26-page judgment, disagreed and explained in detail that the 2009 Regulations already required the surviving partner to establish that a genuine relationship existed, which meant that the nomination requirement added no weight or value to the evidential hurdle; the confirmation of the member's wishes holds no inherent value. Effect and wider impact The Supreme Court's ruling has, as expected, generated a lot of attention in the media but it is questionable what relevance it has for the rights of cohabiting couples with private sector pensions. This is largely because by and large private sector occupational pension schemes provide survivor's benefits for unmarried partners without the need for the additional qualification feature of a nomination form. Accordingly direct application is likely to be relatively rare. However, similar clauses to that considered in this case are not unheard of in the private sector and could be a cause for concern as discriminating between a cohabitant and a married spouse or civil partner. It is also worth noting that the ECHR which was the legislative route for Ms Brewster's claim, is not a route applicable to private sector pension schemes as the rights encompassed in the ECHR cannot be enforced against private parties (individuals or legal entities). For public sector schemes the case is relevant with most such schemes having similar clauses to the Scheme in question. It is to be expected that these schemes will need to revisit past death benefit cases to see whether a cohabitant pension could and should have been paid. Given the size and range of public schemes likely to be affected this could be a lengthy and sizeable task. The focus of any exercise will be the 'importance of the nomination form' in whether a pension was paid or claimed. Cohabitants will still have to meet the other factual tests of having a 'qualifying cohabiting relationship' and showing this many years after the event may not be easy in some cases. As well as public sector schemes, schemes that have come out of the public sector, or were set up to take public sector workers, may retain/have a similar provision, where they have used a public sector scheme as a blueprint mirroring its rules, not just in benefits but also in administration (as part of, for example, fair deal arrangements), could also be affected. Trustees of these arrangements will need to consider their rules in this context and also any continuing contract to which the scheme relates. Comment Clearly it is to be expected that the Treasury and public sector schemes affected will be considering this judgement carefully and in many cases taking action to review past cases possibly affected. Individual members may also now be considering making contact to have their cases reviewed where they are aware or suspect that a claim was refused for the lack of a nomination form. There will also be cases where individuals self-selected and did not claim, aware they did not have that one piece of evidence. Trustees of private sector schemes if in any doubt as to what their rules provide should have these checked to ensure that they are not one of the few schemes that contains similar provisions to those examined in this case. In the future this judgement could form the basis of a challenge to the more commonly used model in the private sector where a cohabitant's pension is determined at the discretion of the trustees. The position in the public sector was a factual test, so if the test could be met there was no discretion involved. Trustees of private sector schemes to exercise their discretion have to consider all the relevant circumstances to establish that a relationship akin to marriage with interdependency exists. It may be that this opens up the possibility for cohabiting members to challenge the discretionary element of their entitlement seeing it as a hurdle that married or civil partners do not have to overcome. Cohabiting remains an undefined concept (there may be pressure to provide more legal direction) and therefore whether or not it is explicitly expressed some form of judgement and discretion is required in order to establish whether a relationship is of a sufficient type to be called a cohabitation. Pension scheme trustees should be versed in using their discretions and the principles under which they can effectively do so. Future challenges are therefore more likely to be on the recognised basis that the trustees have not exercised their discretion appropriately rather than the discretion itself is an inappropriate barrier. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{7A5CFBDE-269B-4E44-B93F-189CECFCB765}https://www.shoosmiths.co.uk/client-resources/legal-updates/get-serious-on-governance-12393.aspxGet serious on governance 'Good governance matters' is the overarching statement coming from The Pensions Regulator ('TPR') who has recently stressed the need for a drive up in standards of governance as part of their '21st Century Trusteeship and Governance' initiative. Consultation has been ongoing within the wider pensions industry about how the standards of trustee competence, governance and administration of pension schemes can be raised. It comes on the back of research which suggested that the quality of governance and administration under the current regime is 'patchy', with many schemes falling short of the standard that is currently expected. Enforcement action taken by TPR was described as lacklustre. TPR have stated that 'it is unacceptable that some members are at a greater risk of poor outcomes in later life purely because they happen to have been employed by an employer with a poorly run pension scheme'. Strip back and clarify TPR's initiative does not involve imposing an entirely new set of standards for governance and administration 'reinventing the wheel', instead it is taking a 'back to basics' approach. The aim is to simplify and clarify areas of the current regime, which many have felt are too voluminous and lack accessibility. As part of the initiative, TPR is proposing three ways in which to achieve its aims: Targeted education and tools; Clear, practical definitions and realistic expectations for 'higher standards', professional trustees and board chairs; Tougher and broader use of existing enforcement powers. The ambition is for real work to be done very quickly in those schemes, and by those trustees, who have so far failed to meet the current regime's standard - the initiative has a distinct air of 'cracking the whip'. Education TPR undoubtedly has an important role to play in supporting trustee boards to be as effective as possible. That said, it is their intention to consolidate, simplify and reduce much of the existing guidance that is currently available, particularly in terms of website content. This, it is hoped, will help to reduce the time required to source information, and will ultimately make information more accessible. TPR aims to put words into practice by publishing 'extensive guidance' on a number of common areas which affect all pension schemes and build upon and streamline much of what is already in existence. To work 'efficiently' TPR intends to use the data it collects more decisively. Efforts, resources and signposting will be actively targeted to those schemes and trustees who need it most. TPR have acknowledged the burden placed on the industry when guidance is generalised, so it is hoped that in targeting specific schemes who fall short, compliant schemes are recognised and are given the freedom to 'continue as normal'. Enforcement As well as educating and targeting certain schemes, TPR intends to get more proactive on enforcement. Those trustees and schemes who are either unable or unwilling to meet redefined practical standards can expect to come under scrutiny and for TPR to act swiftly to enforce good governance. They are getting tough(er); having 'already fined trustees for failing to complete the scheme return and for failing to prepare a chair statement'. This, some will argue, shows a real shift from rhetoric, to actual and genuine enforcement and wider-intense use of the powers available to them by investigating more closely the trustees who fail to meet expectations around competence and governance. Not only are TPR expecting to use their powers more broadly, but they intend to increase the publicity of when those powers are being administered. Part of this decision can be seen as TPR wanting to be seen to be exercising their powers, but part can also be seen as 'educating' and providing a useful guidance to other trustees and managers so as to prevent falling foul of the same action. This will help to improve TPR's transparency. The publicised actions will be done via Intervention Reports under s89 of the Pensions Act 2004. Mandatory qualification Another part of the initial discussions was around the idea that professional trustees ought to have mandatory minimum levels of qualification before fulfilling their role on the board. While the idea was welcomed by a few, the majority (including TPR) agreed that 'minimum qualifications' would not be an adequate test and measure of the broad range of experience, skills, knowledge and attitudes required of a trustee on an ongoing basis. TPR agrees that minimum qualifications are unlikely to address failures to comply with governance and competence expectations, and is unlikely to encourage increased diversity on the board. Accordingly TPR has stated it will consider a 'fit and proper test' for trustees at a later time once it has clarified its expectations. Conclusion It is clear that TPR is getting tough on schemes who are not meeting pension scheme governance and administration standards. While the response included no vastly-radical changes or ideas, trustees should note that ongoing failures to meet minimum standards can and will result in publicised enforcement actions. For now, no further details of TPR's plans have been released, other than confirmation they expect to be in implementation mode around Spring 2017. With this in mind, scheme trustees should be considering now and throughout 2017 reviewing and updating their scheme governance skills and processes. All steps taken should be well thought out and tested for robustness and proportionality with the support and guidance where needed of the trustees' legal, actuarial, administration and investment advisers. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 25 Jan 2017 00:00:00 Z<![CDATA[Heather Chandler ]]><![CDATA[ 'Good governance matters' is the overarching statement coming from The Pensions Regulator ('TPR') who has recently stressed the need for a drive up in standards of governance as part of their '21st Century Trusteeship and Governance' initiative. Consultation has been ongoing within the wider pensions industry about how the standards of trustee competence, governance and administration of pension schemes can be raised. It comes on the back of research which suggested that the quality of governance and administration under the current regime is 'patchy', with many schemes falling short of the standard that is currently expected. Enforcement action taken by TPR was described as lacklustre. TPR have stated that 'it is unacceptable that some members are at a greater risk of poor outcomes in later life purely because they happen to have been employed by an employer with a poorly run pension scheme'. Strip back and clarify TPR's initiative does not involve imposing an entirely new set of standards for governance and administration 'reinventing the wheel', instead it is taking a 'back to basics' approach. The aim is to simplify and clarify areas of the current regime, which many have felt are too voluminous and lack accessibility. As part of the initiative, TPR is proposing three ways in which to achieve its aims: Targeted education and tools; Clear, practical definitions and realistic expectations for 'higher standards', professional trustees and board chairs; Tougher and broader use of existing enforcement powers. The ambition is for real work to be done very quickly in those schemes, and by those trustees, who have so far failed to meet the current regime's standard - the initiative has a distinct air of 'cracking the whip'. Education TPR undoubtedly has an important role to play in supporting trustee boards to be as effective as possible. That said, it is their intention to consolidate, simplify and reduce much of the existing guidance that is currently available, particularly in terms of website content. This, it is hoped, will help to reduce the time required to source information, and will ultimately make information more accessible. TPR aims to put words into practice by publishing 'extensive guidance' on a number of common areas which affect all pension schemes and build upon and streamline much of what is already in existence. To work 'efficiently' TPR intends to use the data it collects more decisively. Efforts, resources and signposting will be actively targeted to those schemes and trustees who need it most. TPR have acknowledged the burden placed on the industry when guidance is generalised, so it is hoped that in targeting specific schemes who fall short, compliant schemes are recognised and are given the freedom to 'continue as normal'. Enforcement As well as educating and targeting certain schemes, TPR intends to get more proactive on enforcement. Those trustees and schemes who are either unable or unwilling to meet redefined practical standards can expect to come under scrutiny and for TPR to act swiftly to enforce good governance. They are getting tough(er); having 'already fined trustees for failing to complete the scheme return and for failing to prepare a chair statement'. This, some will argue, shows a real shift from rhetoric, to actual and genuine enforcement and wider-intense use of the powers available to them by investigating more closely the trustees who fail to meet expectations around competence and governance. Not only are TPR expecting to use their powers more broadly, but they intend to increase the publicity of when those powers are being administered. Part of this decision can be seen as TPR wanting to be seen to be exercising their powers, but part can also be seen as 'educating' and providing a useful guidance to other trustees and managers so as to prevent falling foul of the same action. This will help to improve TPR's transparency. The publicised actions will be done via Intervention Reports under s89 of the Pensions Act 2004. Mandatory qualification Another part of the initial discussions was around the idea that professional trustees ought to have mandatory minimum levels of qualification before fulfilling their role on the board. While the idea was welcomed by a few, the majority (including TPR) agreed that 'minimum qualifications' would not be an adequate test and measure of the broad range of experience, skills, knowledge and attitudes required of a trustee on an ongoing basis. TPR agrees that minimum qualifications are unlikely to address failures to comply with governance and competence expectations, and is unlikely to encourage increased diversity on the board. Accordingly TPR has stated it will consider a 'fit and proper test' for trustees at a later time once it has clarified its expectations. Conclusion It is clear that TPR is getting tough on schemes who are not meeting pension scheme governance and administration standards. While the response included no vastly-radical changes or ideas, trustees should note that ongoing failures to meet minimum standards can and will result in publicised enforcement actions. For now, no further details of TPR's plans have been released, other than confirmation they expect to be in implementation mode around Spring 2017. With this in mind, scheme trustees should be considering now and throughout 2017 reviewing and updating their scheme governance skills and processes. All steps taken should be well thought out and tested for robustness and proportionality with the support and guidance where needed of the trustees' legal, actuarial, administration and investment advisers. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{38B22D7C-8B1B-40A6-90B1-7A2DC1E9E93C}https://www.shoosmiths.co.uk/client-resources/legal-updates/government-plans-to-tackle-pension-scams-12365.aspxGovernment plans to tackle pension scams This article explores the joint consultation issued by the Department for Work and Pensions (DWP) and HM Treasury (HMT) regarding plans to tackle pension scams. Pensions are usually one of the largest financial assets that people will own in their lifetime. However, they are an attractive target for fraudsters. Pension scams can cost people their life savings, with little opportunity for them to be re-built. The threat of pension scams has increased significantly, particularly in light of the pension flexibilities for accessing money purchase benefits introduced in April 2015. In light of the increased threat, the DWP and HMT published a joint consultation on 5 December 2016, aimed at introducing new measures to tackle pension scams. What is a pension scam? Pension scams have commonly been aimed at individuals who have not yet reached minimum pension age (usually, age 55). Such individuals might be fraudulently encouraged to transfer their pension into another scheme on the pretext of obtaining cash, tax free, which may actually result in a tax charge of up to 55%. In light of the April 2015 pension flexibilities, scams have also been taking other forms, including encouraging individuals to access their pension savings flexibly to invest in unregulated investments. The consultation document raises concerns that fraudsters may shift to wider types of activities through which to effect scams involving pension savings. In its consultation, the government has therefore suggested a new definition of activities that can be considered pension scams. It is as follows: 'The marketing of products and arrangements and successful or unsuccessful attempts by a party (the 'scammer') to: release funds from an HMRC registered pension scheme, often resulting in a tax charge that is normally not anticipated by the member persuade individuals over the age of 55 to flexibly access their pension savings in order to invest in inappropriate investments persuade individuals under 55 to transfer their pension savings in order to invest in inappropriate investments where the scammer has misled the individual in relation to the nature of, or risks attached to, the purported investment(s) or their appropriateness for that individual investor.' Measures to tackle pension scams The consultation document sets out three main proposed measures aimed at tackling pension scams: 1. A ban on cold calling in relation to pensions to help stop fraudsters contacting individuals The consultation notes that cold calling is thought to be the most common method by which pension scams are initiated. The government is proposing to introduce a ban on all cold calling in relation to pensions. The government considers that this will send a clear message to all pension savers that no legitimate firm will ever cold call them regarding their pension. The proposed ban is not intended to apply to legitimate interactions, where pension savers have expressly requested information from a firm (such as their existing pension provider) or where an existing client relationship exists (for example, with a financial adviser with whom the saver has had previous appointments). Although the proposal relates to phone calls, the government is seeking views on extending the ban to other forms of communications. 2. Limiting the statutory right to transfer to some occupational pension schemes Pension scam activity is often focused around transfers to other pension schemes. Scheme trustees/ managers can find themselves in a difficult position when a scheme member requests a transfer, but there are suspicions over the receiving scheme. Where a member has a statutory right to transfer, to refuse the transfer the transferring scheme trustees/ managers must be able to show that the transfer falls outside of existing legislation. In early 2016, trustees'/ managers' ability to refuse statutory transfers was explored in the case of Hughes v Royal London. The High Court ruled that, when implementing a statutory transfer, there is no requirement to consider whether the person seeking the transfer has any earnings link with the receiving scheme's sponsoring employer. Hughes v Royal London is considered in more detail in the article: An unfortunate boost to potential scammers? The government outlines in the consultation that its view is that there is no explicit rule in current legislation that states there must be an earnings link to facilitate a statutory transfer. However, the government is proposing to implement new legislative restrictions, such that a statutory right to transfer will exist only where: The receiving scheme is a personal pension scheme operated by an FCA authorised entity; A genuine employment link to a receiving occupational pension scheme can be demonstrated, with regular earnings from that employment and confirmation that the employer has agreed to participate in the receiving scheme; or The receiving occupational pension scheme is an authorised master trust. The government notes that an alternative to limiting statutory transfer rights might be to require scheme members who insist on a transfer, notwithstanding suspicions over the receiving scheme, to sign a declaration confirming that the individual understands the nature of the risks. This may be coupled with a 14 day cooling off period to allow the member to reconsider the decision to transfer. For non-statutory transfers, the government will continue to expect scheme trustees/ managers to make all reasonable efforts to agree a transfer request if there is no reason not to do so. 3. Making it harder to open fraudulent schemes Pension schemes wanting to benefit from generous tax reliefs must register with HMRC. However, registration with HMRC does not mean that the scheme is formally regulated. The government considers that it will be harder for schemes to be registered with HMRC for fraudulent purposes if only active (and not dormant) companies can register a scheme with HMRC. The government considers there are few legitimate circumstances in which a dormant company might wish to register a new scheme. The government also welcomes views on the regulation of small self-administered schemes (SSASs). SSASs do not have to be registered with the Pensions Regulator, and can be used where there appears to be no business activity by the employer setting up the scheme. As such, SSASs are often used by pension scammers, for example, to convince individuals to set up SSASs and transfer their (existing) pension savings to such arrangements to 'allow' access to inappropriate investments. Next steps The government is seeking views on its proposals, with the consultation running until 13 February 2017. Given that the pensions industry has long indicated a need for further regulation in relation to pension scams, it is expected that the proposals will be welcomed, particularly the requirement for a genuine employment link where a member requests a transfer to an occupational pension scheme. It is not currently clear when the government anticipates implementing its measures once the consultation is complete. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 19 Jan 2017 00:00:00 Z<![CDATA[Alexandra Ventham ]]><![CDATA[ This article explores the joint consultation issued by the Department for Work and Pensions (DWP) and HM Treasury (HMT) regarding plans to tackle pension scams. Pensions are usually one of the largest financial assets that people will own in their lifetime. However, they are an attractive target for fraudsters. Pension scams can cost people their life savings, with little opportunity for them to be re-built. The threat of pension scams has increased significantly, particularly in light of the pension flexibilities for accessing money purchase benefits introduced in April 2015. In light of the increased threat, the DWP and HMT published a joint consultation on 5 December 2016, aimed at introducing new measures to tackle pension scams. What is a pension scam? Pension scams have commonly been aimed at individuals who have not yet reached minimum pension age (usually, age 55). Such individuals might be fraudulently encouraged to transfer their pension into another scheme on the pretext of obtaining cash, tax free, which may actually result in a tax charge of up to 55%. In light of the April 2015 pension flexibilities, scams have also been taking other forms, including encouraging individuals to access their pension savings flexibly to invest in unregulated investments. The consultation document raises concerns that fraudsters may shift to wider types of activities through which to effect scams involving pension savings. In its consultation, the government has therefore suggested a new definition of activities that can be considered pension scams. It is as follows: 'The marketing of products and arrangements and successful or unsuccessful attempts by a party (the 'scammer') to: release funds from an HMRC registered pension scheme, often resulting in a tax charge that is normally not anticipated by the member persuade individuals over the age of 55 to flexibly access their pension savings in order to invest in inappropriate investments persuade individuals under 55 to transfer their pension savings in order to invest in inappropriate investments where the scammer has misled the individual in relation to the nature of, or risks attached to, the purported investment(s) or their appropriateness for that individual investor.' Measures to tackle pension scams The consultation document sets out three main proposed measures aimed at tackling pension scams: 1. A ban on cold calling in relation to pensions to help stop fraudsters contacting individuals The consultation notes that cold calling is thought to be the most common method by which pension scams are initiated. The government is proposing to introduce a ban on all cold calling in relation to pensions. The government considers that this will send a clear message to all pension savers that no legitimate firm will ever cold call them regarding their pension. The proposed ban is not intended to apply to legitimate interactions, where pension savers have expressly requested information from a firm (such as their existing pension provider) or where an existing client relationship exists (for example, with a financial adviser with whom the saver has had previous appointments). Although the proposal relates to phone calls, the government is seeking views on extending the ban to other forms of communications. 2. Limiting the statutory right to transfer to some occupational pension schemes Pension scam activity is often focused around transfers to other pension schemes. Scheme trustees/ managers can find themselves in a difficult position when a scheme member requests a transfer, but there are suspicions over the receiving scheme. Where a member has a statutory right to transfer, to refuse the transfer the transferring scheme trustees/ managers must be able to show that the transfer falls outside of existing legislation. In early 2016, trustees'/ managers' ability to refuse statutory transfers was explored in the case of Hughes v Royal London. The High Court ruled that, when implementing a statutory transfer, there is no requirement to consider whether the person seeking the transfer has any earnings link with the receiving scheme's sponsoring employer. Hughes v Royal London is considered in more detail in the article: An unfortunate boost to potential scammers? The government outlines in the consultation that its view is that there is no explicit rule in current legislation that states there must be an earnings link to facilitate a statutory transfer. However, the government is proposing to implement new legislative restrictions, such that a statutory right to transfer will exist only where: The receiving scheme is a personal pension scheme operated by an FCA authorised entity; A genuine employment link to a receiving occupational pension scheme can be demonstrated, with regular earnings from that employment and confirmation that the employer has agreed to participate in the receiving scheme; or The receiving occupational pension scheme is an authorised master trust. The government notes that an alternative to limiting statutory transfer rights might be to require scheme members who insist on a transfer, notwithstanding suspicions over the receiving scheme, to sign a declaration confirming that the individual understands the nature of the risks. This may be coupled with a 14 day cooling off period to allow the member to reconsider the decision to transfer. For non-statutory transfers, the government will continue to expect scheme trustees/ managers to make all reasonable efforts to agree a transfer request if there is no reason not to do so. 3. Making it harder to open fraudulent schemes Pension schemes wanting to benefit from generous tax reliefs must register with HMRC. However, registration with HMRC does not mean that the scheme is formally regulated. The government considers that it will be harder for schemes to be registered with HMRC for fraudulent purposes if only active (and not dormant) companies can register a scheme with HMRC. The government considers there are few legitimate circumstances in which a dormant company might wish to register a new scheme. The government also welcomes views on the regulation of small self-administered schemes (SSASs). SSASs do not have to be registered with the Pensions Regulator, and can be used where there appears to be no business activity by the employer setting up the scheme. As such, SSASs are often used by pension scammers, for example, to convince individuals to set up SSASs and transfer their (existing) pension savings to such arrangements to 'allow' access to inappropriate investments. Next steps The government is seeking views on its proposals, with the consultation running until 13 February 2017. Given that the pensions industry has long indicated a need for further regulation in relation to pension scams, it is expected that the proposals will be welcomed, particularly the requirement for a genuine employment link where a member requests a transfer to an occupational pension scheme. It is not currently clear when the government anticipates implementing its measures once the consultation is complete. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{B661FC8A-3D3C-4C5D-B2A7-1680BF1EB009}https://www.shoosmiths.co.uk/client-resources/legal-updates/pension-protection-fund-levy-determination-2017-18-12354.aspxPension Schemes: Pension Protection Fund Levy Determination 2017/18 This update looks at the Pension Protection Fund Levy determination for the PPF Levy Year 1 April 2017 to 31 March 2018. In particular, we look at whether there are any action points which pension scheme trustees should be taking as a consequence of the levy determination and the associated guidance. The Determination is not yet in final form and will remain in principle for the time being. This is because the PPF is considering whether it needs to make any changes to reflect scenarios where eligible schemes no longer have a substantive employer after a restructuring. The final determination will be published by 31 March 2017 at the latest. The PPF has stated that it is their firm intention that there will be no other changes other than addition of material relating to the substantive employer point. The PPF estimate for the 2017/18 levy year is £615m, which is the same as last year. Given that we are in the final year of the current levy triennium, relatively little change in the process for this year has been made. The PPF will shortly begin consulting on the next levy triennium. One of the main changes to this year is to include the ability for scheme sponsors/guarantors to notify Experian when a move to FRS102 would otherwise cause artificial move in a company's Experian rating. Sponsors or guarantors impacted by changes to data for fixed variables will be able to certify the impact of the accounting standards change. Originally this was only going to be an option available to sponsors and guarantors on the large and complex and the Not for Profit Scorecards but the PPF has extended this certificate to all sponsors/guarantors. The PPF also considered representations on whether to use the FCA Mutual Public Register for Mortgage Data. Specific issues have been raised by Mutuals in respect of mortgage scores. Mutuals do not file reports and accounts to Companies House meaning that it is not possible for Experian to determine information relating to mortgages. Instead the PPF assumes a neutral score regarding mortgages and charges rather than a score of zero. The PPF concluded for this year that the FCA Register is not sufficiently comprehensive and there is not a case for a different approach specifically for Mutuals. The PPF's view is that they have attempted to take a proportionate approach by avoiding the assumption of the worst possible score but to use a neutral score. The PPF indicated that aspects of the model would be expected to change for the first triennium but for this levy year, the PPF will continue to use a neutral score instead. The PPF has indicated that the large and complex, independent score and not for profit scorecards are all being rebuilt for the third triennium and the PPF noted that the current Mutual PPF population is significantly concentrated on these scorecards. The PPF says that early indications are that Mortgages are not likely to be significant to the overall score in the rebuilt scorecards. As such where charges are not registered with one of the Registries named in the PPF Levy Determination the PPF's current approach of using neutral mortgage scores will continue. The procedure for certifying contingent assets this year is broadly the same as last year. Therefore, trustees will need to ensure that existing contingent assets are recertified via Exchange by Friday 31st March. For the levy year, 2015-16, the PPF introduced a requirement that when certifying a type A contingent asset, trustees must provide a statement as to the amount which the trustees are reasonably satisfied that the guarantor could meet (or the value of any cap specified in the guarantee, if this is lower). This is referred to in the PPF guidance as the 'realisable recovery'. Trustees should not assume that the realisable recovery amount that was certified last year will be the same this year. ABC- recertification For schemes who are recertifying an asset backed contribution arrangement ('ABC'), trustees will need to obtain a valuation for the purposes of the recertification. This valuation may either be an updated version of the existing valuation or a full valuation. Where an updated valuation is obtained, the valuer must: confirm that the previous valuation of the ABC asset was taken into account, opine on the current value of the ABC asset and accept a duty of care to the PPF in providing the opinion. If the underlying legal positon remains the same since the ABC was last certified, then the ABC valuer can continue to rely on previously supplied legal advice. The trustees' legal advisers will need to confirm that their previous advice remains current and that no changes have been made to the terms of the ABC which may materially affect the basis on which the advice was given. The PPF continues to require trustees, in respect of any ABC asset which consists of or includes real estate, to obtain a certificate of title in respect of the ABC assets. This requirement also applies where the ABC asset is a loan note issued by another group company. This has presented practical obstacles for many companies where the assets involved include numerous properties and therefore render the cost of obtaining certificates of title for each property prohibitive. The PPF suggested in its consultation document that it is keeping under review the use of the ABC structure where loan notes are involved and the PPF has suggested that they may bring the levy recognition more into line with that of Type A contingent assets (guarantees) in the future. We will continue to monitor this position when the levy triennium consultation is issued. For trustees certifying an ABC for the first time or who do not wish to go through the full process for getting an ABC recognised but instead wish to get a particular value taken into account, the process is largely the same as set out in our note from January 2015. A copy of the update can be found here but please bear in mind that the deadlines should refer to 2016. For any information about the PPF levy process including how to appeal your levy invoice, please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 18 Jan 2017 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ This update looks at the Pension Protection Fund Levy determination for the PPF Levy Year 1 April 2017 to 31 March 2018. In particular, we look at whether there are any action points which pension scheme trustees should be taking as a consequence of the levy determination and the associated guidance. The Determination is not yet in final form and will remain in principle for the time being. This is because the PPF is considering whether it needs to make any changes to reflect scenarios where eligible schemes no longer have a substantive employer after a restructuring. The final determination will be published by 31 March 2017 at the latest. The PPF has stated that it is their firm intention that there will be no other changes other than addition of material relating to the substantive employer point. The PPF estimate for the 2017/18 levy year is £615m, which is the same as last year. Given that we are in the final year of the current levy triennium, relatively little change in the process for this year has been made. The PPF will shortly begin consulting on the next levy triennium. One of the main changes to this year is to include the ability for scheme sponsors/guarantors to notify Experian when a move to FRS102 would otherwise cause artificial move in a company's Experian rating. Sponsors or guarantors impacted by changes to data for fixed variables will be able to certify the impact of the accounting standards change. Originally this was only going to be an option available to sponsors and guarantors on the large and complex and the Not for Profit Scorecards but the PPF has extended this certificate to all sponsors/guarantors. The PPF also considered representations on whether to use the FCA Mutual Public Register for Mortgage Data. Specific issues have been raised by Mutuals in respect of mortgage scores. Mutuals do not file reports and accounts to Companies House meaning that it is not possible for Experian to determine information relating to mortgages. Instead the PPF assumes a neutral score regarding mortgages and charges rather than a score of zero. The PPF concluded for this year that the FCA Register is not sufficiently comprehensive and there is not a case for a different approach specifically for Mutuals. The PPF's view is that they have attempted to take a proportionate approach by avoiding the assumption of the worst possible score but to use a neutral score. The PPF indicated that aspects of the model would be expected to change for the first triennium but for this levy year, the PPF will continue to use a neutral score instead. The PPF has indicated that the large and complex, independent score and not for profit scorecards are all being rebuilt for the third triennium and the PPF noted that the current Mutual PPF population is significantly concentrated on these scorecards. The PPF says that early indications are that Mortgages are not likely to be significant to the overall score in the rebuilt scorecards. As such where charges are not registered with one of the Registries named in the PPF Levy Determination the PPF's current approach of using neutral mortgage scores will continue. The procedure for certifying contingent assets this year is broadly the same as last year. Therefore, trustees will need to ensure that existing contingent assets are recertified via Exchange by Friday 31st March. For the levy year, 2015-16, the PPF introduced a requirement that when certifying a type A contingent asset, trustees must provide a statement as to the amount which the trustees are reasonably satisfied that the guarantor could meet (or the value of any cap specified in the guarantee, if this is lower). This is referred to in the PPF guidance as the 'realisable recovery'. Trustees should not assume that the realisable recovery amount that was certified last year will be the same this year. ABC- recertification For schemes who are recertifying an asset backed contribution arrangement ('ABC'), trustees will need to obtain a valuation for the purposes of the recertification. This valuation may either be an updated version of the existing valuation or a full valuation. Where an updated valuation is obtained, the valuer must: confirm that the previous valuation of the ABC asset was taken into account, opine on the current value of the ABC asset and accept a duty of care to the PPF in providing the opinion. If the underlying legal positon remains the same since the ABC was last certified, then the ABC valuer can continue to rely on previously supplied legal advice. The trustees' legal advisers will need to confirm that their previous advice remains current and that no changes have been made to the terms of the ABC which may materially affect the basis on which the advice was given. The PPF continues to require trustees, in respect of any ABC asset which consists of or includes real estate, to obtain a certificate of title in respect of the ABC assets. This requirement also applies where the ABC asset is a loan note issued by another group company. This has presented practical obstacles for many companies where the assets involved include numerous properties and therefore render the cost of obtaining certificates of title for each property prohibitive. The PPF suggested in its consultation document that it is keeping under review the use of the ABC structure where loan notes are involved and the PPF has suggested that they may bring the levy recognition more into line with that of Type A contingent assets (guarantees) in the future. We will continue to monitor this position when the levy triennium consultation is issued. For trustees certifying an ABC for the first time or who do not wish to go through the full process for getting an ABC recognised but instead wish to get a particular value taken into account, the process is largely the same as set out in our note from January 2015. A copy of the update can be found here but please bear in mind that the deadlines should refer to 2016. For any information about the PPF levy process including how to appeal your levy invoice, please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{4BFB6D83-B510-4A69-A3A5-16F1815DDD7B}https://www.shoosmiths.co.uk/client-resources/legal-updates/pensions-iorp-ii-and-elephant-in-the-room-12321.aspxPensions: IORP II and the elephant in the room After almost two years of negotiation, the revised European Union Directive on the Activities and Supervision of Institutions for Occupational Retirement Provision (IORP II) comes into effect today. Member States will now have two years to incorporate it into national law. But what is IORP II? How will it impact on occupational pension provision in the UK? And what about the elephant in room - Brexit? Background IORP I came into effect in 2003, and lays down rules for activities carried out by IORPs (which, in the UK, are broadly employer-funded occupational pension schemes). Some of the UK's most important pensions legislation was introduced as a result of IORP, including: the requirement for a scheme to carry out a valuation to prudently calculate its 'technical provisions', and for underfunded schemes to put in place a recovery plan; the requirement that a scheme is 'effectively run by persons of good repute who must themselves have appropriate professional qualifications and experience or employ advisers with appropriate professional qualifications and experience'; minimum disclosure requirements for information to be provided to members; and powers for the Pensions Regulator (the Regulator) to supervise and monitor occupational pension schemes. In March 2014, the European Commission published a proposal for a revised IORP, with the aims of: encouraging employer-sponsored retirement provision in the EU; promoting the number of cross-border schemes; ensuring consistency in the implementation of certain original IORP provisions; and ensuring consistency with the provisions of Solvency II. The original IORP II proposals have been significantly watered down. In particular, the proposal to operate Solvency II-style minimum capital balance requirements has been dropped. However, the legislation still makes a number of changes which impact on the administration and management of occupational pension schemes. Main Provisions Generational Considerations IORP II confirms that 'as a general principle, where relevant, IORPs shall take into account the aim of having an equitable spread of risks and benefits between generations in their activities'. This creates some interesting questions about the need to consider the generational impact of certain activities. For example, closing a scheme to future accrual might have a greater impact on younger generations. Similarly, an incentive exercise limited to a particular population may result in different risks and benefits for different generations. This provision is drafted widely, and may be interpreted differently by different Member States. In the UK, for example, it could become another factor to be considered by the Regulator in reviewing pension scheme activities. Cross-Border Activities One of the primary aims of revising IORP was to promote the use of cross-border schemes. There have been a number of changes to operational provisions for cross-border schemes to assist here, and these should broadly be welcomed. However, the key measure in achieving this aim would have been to remove (or at least water down) the requirement for cross-border schemes to be fully funded on a technical provisions basis. This requirement has in fact been retained largely unamended, which will no doubt limit the effectiveness of the EU's aims here. Scheme Governance One of the key changes in IORP II is the more prescriptive requirements on the governance of occupational pension schemes. These changes have been introduced because of the divergence in scheme governance policies across the EU, but may prove particularly challenging in the UK, where governance is already relatively prescriptively regulated. Each IORP will be required 'to have in place an effective system of governance which provides for sound and prudent management of their activities'. IORPs will be required, for example, to apply written policies on risk management, internal audit, and actuarial and outsourced activities; and to carry out a risk assessment at least every three years. While many professional trustees will likely already have such policies in place, there will be some trustee boards whose existing procedures do not cover all of these areas. In particular, the focus on outsourcing is new. The indications are that schemes can no longer simply pay lip service to good governance and risk management - there will be much greater focus on these areas in the coming years. Information to Members As originally drafted, IORP II would have provided much more prescriptive member disclosure obligations. A large amount of detail has been removed from the Directive, but general principles about information provision are still included. One of the key tasks for the government in legislating for the Directive will be to consider how IORP II interacts with current disclosure legislation. Regulator Powers A number of changes have been made to Regulator powers under IORP II. First, it seems that the extended outsourcing rules will bring the actions of third party service providers, in certain circumstances, within the Regulator's remit. Secondly, and perhaps more importantly, the Regulator will now 'have the necessary powers to require IORPs to remedy weaknesses or deficiencies identified in the supervisory review process'. This has the potential to push the Regulator's role beyond a 'monitor' of occupational pension schemes, towards them themselves having the power to correct issues identified. The elephant in the room The UK's exit from the EU has not yet been formally triggered and, when it is, the initial period of negotiation may take up to two years. It is possible that the UK will be required to implement IORP II, despite Brexit, unless part of the negotiations for exit impact on the implementation of certain EU Directives. Equally, the UK could be required to implement the provisions of the Directive, and to maintain them after exit, as part of our new trade deals with the EU. Until Brexit is triggered, it unclear how IORP II will affect UK occupational pension schemes. For now, it would be safer to assume that these requirements will become part of UK law, meaning that pension schemes should anticipate greater governance and regulation in some areas, but perhaps not to the same degree as may have been expected when IORP II was originally proposed. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Fri, 13 Jan 2017 00:00:00 Z<![CDATA[Sarah Jenkins ]]><![CDATA[ After almost two years of negotiation, the revised European Union Directive on the Activities and Supervision of Institutions for Occupational Retirement Provision (IORP II) comes into effect today. Member States will now have two years to incorporate it into national law. But what is IORP II? How will it impact on occupational pension provision in the UK? And what about the elephant in room - Brexit? Background IORP I came into effect in 2003, and lays down rules for activities carried out by IORPs (which, in the UK, are broadly employer-funded occupational pension schemes). Some of the UK's most important pensions legislation was introduced as a result of IORP, including: the requirement for a scheme to carry out a valuation to prudently calculate its 'technical provisions', and for underfunded schemes to put in place a recovery plan; the requirement that a scheme is 'effectively run by persons of good repute who must themselves have appropriate professional qualifications and experience or employ advisers with appropriate professional qualifications and experience'; minimum disclosure requirements for information to be provided to members; and powers for the Pensions Regulator (the Regulator) to supervise and monitor occupational pension schemes. In March 2014, the European Commission published a proposal for a revised IORP, with the aims of: encouraging employer-sponsored retirement provision in the EU; promoting the number of cross-border schemes; ensuring consistency in the implementation of certain original IORP provisions; and ensuring consistency with the provisions of Solvency II. The original IORP II proposals have been significantly watered down. In particular, the proposal to operate Solvency II-style minimum capital balance requirements has been dropped. However, the legislation still makes a number of changes which impact on the administration and management of occupational pension schemes. Main Provisions Generational Considerations IORP II confirms that 'as a general principle, where relevant, IORPs shall take into account the aim of having an equitable spread of risks and benefits between generations in their activities'. This creates some interesting questions about the need to consider the generational impact of certain activities. For example, closing a scheme to future accrual might have a greater impact on younger generations. Similarly, an incentive exercise limited to a particular population may result in different risks and benefits for different generations. This provision is drafted widely, and may be interpreted differently by different Member States. In the UK, for example, it could become another factor to be considered by the Regulator in reviewing pension scheme activities. Cross-Border Activities One of the primary aims of revising IORP was to promote the use of cross-border schemes. There have been a number of changes to operational provisions for cross-border schemes to assist here, and these should broadly be welcomed. However, the key measure in achieving this aim would have been to remove (or at least water down) the requirement for cross-border schemes to be fully funded on a technical provisions basis. This requirement has in fact been retained largely unamended, which will no doubt limit the effectiveness of the EU's aims here. Scheme Governance One of the key changes in IORP II is the more prescriptive requirements on the governance of occupational pension schemes. These changes have been introduced because of the divergence in scheme governance policies across the EU, but may prove particularly challenging in the UK, where governance is already relatively prescriptively regulated. Each IORP will be required 'to have in place an effective system of governance which provides for sound and prudent management of their activities'. IORPs will be required, for example, to apply written policies on risk management, internal audit, and actuarial and outsourced activities; and to carry out a risk assessment at least every three years. While many professional trustees will likely already have such policies in place, there will be some trustee boards whose existing procedures do not cover all of these areas. In particular, the focus on outsourcing is new. The indications are that schemes can no longer simply pay lip service to good governance and risk management - there will be much greater focus on these areas in the coming years. Information to Members As originally drafted, IORP II would have provided much more prescriptive member disclosure obligations. A large amount of detail has been removed from the Directive, but general principles about information provision are still included. One of the key tasks for the government in legislating for the Directive will be to consider how IORP II interacts with current disclosure legislation. Regulator Powers A number of changes have been made to Regulator powers under IORP II. First, it seems that the extended outsourcing rules will bring the actions of third party service providers, in certain circumstances, within the Regulator's remit. Secondly, and perhaps more importantly, the Regulator will now 'have the necessary powers to require IORPs to remedy weaknesses or deficiencies identified in the supervisory review process'. This has the potential to push the Regulator's role beyond a 'monitor' of occupational pension schemes, towards them themselves having the power to correct issues identified. The elephant in the room The UK's exit from the EU has not yet been formally triggered and, when it is, the initial period of negotiation may take up to two years. It is possible that the UK will be required to implement IORP II, despite Brexit, unless part of the negotiations for exit impact on the implementation of certain EU Directives. Equally, the UK could be required to implement the provisions of the Directive, and to maintain them after exit, as part of our new trade deals with the EU. Until Brexit is triggered, it unclear how IORP II will affect UK occupational pension schemes. For now, it would be safer to assume that these requirements will become part of UK law, meaning that pension schemes should anticipate greater governance and regulation in some areas, but perhaps not to the same degree as may have been expected when IORP II was originally proposed. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{F6658C32-44F6-4A2B-A2D4-098988F99B8E}https://www.shoosmiths.co.uk/client-resources/legal-updates/pension-scheme-bill-installing-confidence-in-pensions-12100.aspxPensions Schemes Bill - Installing Confidence in Pensions? The Pensions Schemes Bill 2016-17 had its first reading in the House of Lords on 19 October 2016. It contained more details on a number of legislative changes including long awaited changes to master trust authorisation and administration charges. The Bill will come as welcome news to many as it delivers important new controls for master trusts and provides a strengthening-layer to existing legislation on exit charges. The new Bill has a clear and distinct focus; to protect savers and to maintain confidence in pension savings. Perhaps the most welcome of the proposals were those in respect of master trusts. These schemes are an increasingly popular solution serving the UK pensions market, particularly for smaller employers who seek to benefit from the economies of scale which these schemes naturally attract. Statistics from The Pensions Regulator ('TPR') suggests that master trusts benefitted from a 90% increase in memberships and assets since 2013. Yet, one of the major concerns regarding these schemes has been the lack of any requirement to meet a minimum governance standard. As such, the market contains a number of trusts who are suffering as a result of thin margins and weak financial backing, which means that there are many members whose savings are potentially at risk from those trusts who fall short in providing adequate protection. The Bill, it is hoped, will strengthen these schemes by introducing a requirement to meet higher operating criteria. The Bill also aims to boost consumer protection on a broader range of pension issues; including a new approval regime and giving new powers to TPR which will enable them to intervene where schemes are at risk of failing. Commenting on the proposals, the Minister for Pensions, Richard Harrington MP, said: 'We are helping to create a culture of saving across the country and have delivered much needed change to our pension system to make saving easier, fairer and safer for all. We want to make sure that people saving into master trusts enjoy the same protection as everyone else, which is why we are levelling-up that protection, to give these savers more confidence in their pension schemes.' When the Bill becomes law, master trusts (which will include existing schemes) will be required to show that: persons involved in the scheme are fit and proper, the scheme is financially sustainable, the scheme funder meets certain requirements in order to provide assurance about their financial situation, systems and processes requirements, relating to the governance and administration of the scheme are sufficient, and that the scheme has an adequate continuity strategy. As well as giving TPR new powers to take action where the above criteria have not been met, measures have been included to provide for and ensure an 'orderly exit' where a scheme fails or otherwise chooses to leave the market. This aligns with the government's aim at providing continuity of member saving and supporting employers in fulfilling their automatic enrolment duties. TPR Chief Executive, Lesly Titcomb, welcomes the new Bill and supports the proposals laid before the House of Lords, stating: 'We are very pleased that the Pension Schemes Bill will drive up standards and give us tough new supervisory powers to authorise and de-authorise master trusts according to strict criteria, ensuring members are better protected and ultimately receive the benefits they expect.' In addition to the changes to master trusts, the Bill will amend existing legislation relating to charges. These changes will craft new regulations which will support the government's intention to introduce a cap on early exit charges. Currently, the charge that exists can create a barrier for occupational pension scheme members wanting to access their pension savings, and so the government is seeking to ensure that people can access their pension freedoms without being unnecessarily penalised by early exit fees. The proposal to cap charges will be seen to give effect to the commitment made by the government in March 2014 to ban member-borne commission charges arising under existing arrangements in certain occupational pension schemes. For now, the announcement of the Bill has attracted a lot of positive attention and has been warmly welcomed by many. However, we are currently in the very early stages so there is still a long way to go until the proposals become concrete, the process of which will be followed closely by us. The Bill is due to have its second reading on 1 November 2016. For any queries relating to the announcement or how this proposal may affect your scheme, please contact our Pensions department. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 02 Nov 2016 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ The Pensions Schemes Bill 2016-17 had its first reading in the House of Lords on 19 October 2016. It contained more details on a number of legislative changes including long awaited changes to master trust authorisation and administration charges. The Bill will come as welcome news to many as it delivers important new controls for master trusts and provides a strengthening-layer to existing legislation on exit charges. The new Bill has a clear and distinct focus; to protect savers and to maintain confidence in pension savings. Perhaps the most welcome of the proposals were those in respect of master trusts. These schemes are an increasingly popular solution serving the UK pensions market, particularly for smaller employers who seek to benefit from the economies of scale which these schemes naturally attract. Statistics from The Pensions Regulator ('TPR') suggests that master trusts benefitted from a 90% increase in memberships and assets since 2013. Yet, one of the major concerns regarding these schemes has been the lack of any requirement to meet a minimum governance standard. As such, the market contains a number of trusts who are suffering as a result of thin margins and weak financial backing, which means that there are many members whose savings are potentially at risk from those trusts who fall short in providing adequate protection. The Bill, it is hoped, will strengthen these schemes by introducing a requirement to meet higher operating criteria. The Bill also aims to boost consumer protection on a broader range of pension issues; including a new approval regime and giving new powers to TPR which will enable them to intervene where schemes are at risk of failing. Commenting on the proposals, the Minister for Pensions, Richard Harrington MP, said: 'We are helping to create a culture of saving across the country and have delivered much needed change to our pension system to make saving easier, fairer and safer for all. We want to make sure that people saving into master trusts enjoy the same protection as everyone else, which is why we are levelling-up that protection, to give these savers more confidence in their pension schemes.' When the Bill becomes law, master trusts (which will include existing schemes) will be required to show that: persons involved in the scheme are fit and proper, the scheme is financially sustainable, the scheme funder meets certain requirements in order to provide assurance about their financial situation, systems and processes requirements, relating to the governance and administration of the scheme are sufficient, and that the scheme has an adequate continuity strategy. As well as giving TPR new powers to take action where the above criteria have not been met, measures have been included to provide for and ensure an 'orderly exit' where a scheme fails or otherwise chooses to leave the market. This aligns with the government's aim at providing continuity of member saving and supporting employers in fulfilling their automatic enrolment duties. TPR Chief Executive, Lesly Titcomb, welcomes the new Bill and supports the proposals laid before the House of Lords, stating: 'We are very pleased that the Pension Schemes Bill will drive up standards and give us tough new supervisory powers to authorise and de-authorise master trusts according to strict criteria, ensuring members are better protected and ultimately receive the benefits they expect.' In addition to the changes to master trusts, the Bill will amend existing legislation relating to charges. These changes will craft new regulations which will support the government's intention to introduce a cap on early exit charges. Currently, the charge that exists can create a barrier for occupational pension scheme members wanting to access their pension savings, and so the government is seeking to ensure that people can access their pension freedoms without being unnecessarily penalised by early exit fees. The proposal to cap charges will be seen to give effect to the commitment made by the government in March 2014 to ban member-borne commission charges arising under existing arrangements in certain occupational pension schemes. For now, the announcement of the Bill has attracted a lot of positive attention and has been warmly welcomed by many. However, we are currently in the very early stages so there is still a long way to go until the proposals become concrete, the process of which will be followed closely by us. The Bill is due to have its second reading on 1 November 2016. For any queries relating to the announcement or how this proposal may affect your scheme, please contact our Pensions department. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{8D03C3AA-14DB-4B5A-9F24-D6F8C787E6C7}https://www.shoosmiths.co.uk/client-resources/legal-updates/occupational-pension-schemes-code-of-practice-11706.aspxOccupational pension schemes: Code of Practice on Defined Contribution Benefits This article will look at the code of practice on defined contribution benefits and the annual Chair of Trustees' Governance Statement. The Pensions Regulator's amended code of practice on the government's administration of occupational trust based schemes providing money purchase benefits came into effect on 28 July 2016. The aim of the amendments to the code is to reflect developments in the legislative regime applying to the governance of defined contribution benefits which have come into force since the code was first issued in 2013. Specifically, new governance measures were introduced by the Occupational Pension Schemes (Changes in Governance) Regulations 2015 including the requirement for the chair of trustees to produce an annual governance statement on money purchase benefits. Additionally the Pensions Regulator recognises that with auto-enrolment an increasing number of employees will be members of defined contribution schemes. The code applies to all schemes providing money purchase benefits including additional voluntary contributions and any defined benefit schemes which provide a money purchase underpin. With additional voluntary contributions, the Pensions Regulator recognises that trustees should consider the risk to members in the context of the AVCs' value relative to members' overall benefits and apply a proportionate approach in meeting the standards within the code. As well as the code of practice itself, the Pensions Regulator has also published six 'How to' Guides to accompany the updated code of practice together with a self-assessment template which is designed to help trustees assess their scheme against the standards in the code. The code of practice covers the following areas: Trustee board Scheme management skills Administration Investment governance Value for members Communications and reporting The 'How to' Guides cover each of these six key areas and provide examples of the regulator's views on best practice in particular areas. Annual chair's statement The requirement to produce an annual governance statement applies to schemes providing money purchase benefits (although not where the only money purchase benefits are additional voluntary contributions). The purpose of the governance statement is for schemes to demonstrate how they have met new minimum quality standards prescribed in legislation. The Pensions Regulator, in the code has said that it expects the statement to be written so that it provides a 'meaningful narrative' of how, and the extent to which, governance standards have been met. The Pensions Regulator's guidance accompanying the code says that it expects trustee boards to document and evidence the actions it describes in the statement but that this paper trail need not be included as part of the statement. Our expectation is that the bulk of the required information will have been obtained by the trustees throughout the year as part of regular reports provided by administrators and investment providers and advisers. If service providers are not producing the information needed by the trustees to produce the chair's statement then the trustees will need to engage with those providers to ensure that they are receiving the information needed to comply with their duties as trustees. In summary, the chair's statement must include the following content: Latest statement on default investment arrangement Details on any review of the default investment arrangement and changes made as a result of that review Descriptions of how the requirements for processing core financial transactions have been met Level of charges and transaction costs during the scheme year (or range of charges and transaction costs where there is more than one fund) Report on the transaction costs that the trustees have not been able to obtain Assessment of the extent to which charges and transaction costs represent good value for members Description of how the requirements for trustee knowledge and understanding have been met Additionally, the Pensions Regulator has produced a scheme assessment template so that trustees can assess their scheme against the DC code and to help complete the chair's governance statement. The template can be found here: http://www.thepensionsregulator.gov.uk/docs/DC-scheme-assessment-template.doc. The code comes at a time when the Pensions Regulator has launched its 21st century trusteeship discussion paper. This discussion paper is designed to seek views on what the Pensions Regulator can do to support raising the standard of pension scheme trusteeship following the regulator's 2015 survey of defined contribution, defined benefits and hybrid schemes. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 15 Aug 2016 00:00:00 +0100<![CDATA[Suzanne Burrell ]]><![CDATA[ This article will look at the code of practice on defined contribution benefits and the annual Chair of Trustees' Governance Statement. The Pensions Regulator's amended code of practice on the government's administration of occupational trust based schemes providing money purchase benefits came into effect on 28 July 2016. The aim of the amendments to the code is to reflect developments in the legislative regime applying to the governance of defined contribution benefits which have come into force since the code was first issued in 2013. Specifically, new governance measures were introduced by the Occupational Pension Schemes (Changes in Governance) Regulations 2015 including the requirement for the chair of trustees to produce an annual governance statement on money purchase benefits. Additionally the Pensions Regulator recognises that with auto-enrolment an increasing number of employees will be members of defined contribution schemes. The code applies to all schemes providing money purchase benefits including additional voluntary contributions and any defined benefit schemes which provide a money purchase underpin. With additional voluntary contributions, the Pensions Regulator recognises that trustees should consider the risk to members in the context of the AVCs' value relative to members' overall benefits and apply a proportionate approach in meeting the standards within the code. As well as the code of practice itself, the Pensions Regulator has also published six 'How to' Guides to accompany the updated code of practice together with a self-assessment template which is designed to help trustees assess their scheme against the standards in the code. The code of practice covers the following areas: Trustee board Scheme management skills Administration Investment governance Value for members Communications and reporting The 'How to' Guides cover each of these six key areas and provide examples of the regulator's views on best practice in particular areas. Annual chair's statement The requirement to produce an annual governance statement applies to schemes providing money purchase benefits (although not where the only money purchase benefits are additional voluntary contributions). The purpose of the governance statement is for schemes to demonstrate how they have met new minimum quality standards prescribed in legislation. The Pensions Regulator, in the code has said that it expects the statement to be written so that it provides a 'meaningful narrative' of how, and the extent to which, governance standards have been met. The Pensions Regulator's guidance accompanying the code says that it expects trustee boards to document and evidence the actions it describes in the statement but that this paper trail need not be included as part of the statement. Our expectation is that the bulk of the required information will have been obtained by the trustees throughout the year as part of regular reports provided by administrators and investment providers and advisers. If service providers are not producing the information needed by the trustees to produce the chair's statement then the trustees will need to engage with those providers to ensure that they are receiving the information needed to comply with their duties as trustees. In summary, the chair's statement must include the following content: Latest statement on default investment arrangement Details on any review of the default investment arrangement and changes made as a result of that review Descriptions of how the requirements for processing core financial transactions have been met Level of charges and transaction costs during the scheme year (or range of charges and transaction costs where there is more than one fund) Report on the transaction costs that the trustees have not been able to obtain Assessment of the extent to which charges and transaction costs represent good value for members Description of how the requirements for trustee knowledge and understanding have been met Additionally, the Pensions Regulator has produced a scheme assessment template so that trustees can assess their scheme against the DC code and to help complete the chair's governance statement. The template can be found here: http://www.thepensionsregulator.gov.uk/docs/DC-scheme-assessment-template.doc. The code comes at a time when the Pensions Regulator has launched its 21st century trusteeship discussion paper. This discussion paper is designed to seek views on what the Pensions Regulator can do to support raising the standard of pension scheme trusteeship following the regulator's 2015 survey of defined contribution, defined benefits and hybrid schemes. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{10FC4218-4CE9-408F-9659-9AACAF7A40BC}https://www.shoosmiths.co.uk/client-resources/legal-updates/leaving-the-eu-how-will-uk-pensions-fare-11505.aspxLeaving the EU - How will UK pensions fare? All around the country, businesses, communities and individuals are coming to terms with a future in which the UK (or what is left of it should another referendum on Scottish independence trigger a fragmentation of the UK) is outside the EU. However, what the future holds remains uncertain and much of the political chat is around the UK's plans and the design of its relationship and future links with the EU. What Now? Leaving the EU is likely to have an impact across the board and in several areas specifically relating to UK pensions. The pound is currently at a 32 year low and the stock market has predictably reacted to the uncertainty. One of the key immediate considerations, therefore, for trustees of pension schemes and sponsors is how to manage and deal with the investment volatility that is likely to be part of the immediate to mid-term future. While it would not be sensible to make any kneejerk decisions, we would expect trustees to be seeking appropriate advice and looking in detail at their investment strategies and portfolios. Nothing may change but it would be best practice to assess with appropriate investment advice whether there are any immediate concerns and, if there are, there is a need for action to be taken. The outcome of such a review is likely to be an agreement to monitor progress (or lack thereof) and may include agreed terms of reference and/or markers which, if triggered, would put into motion a pre-established course of conduct or action. Certainly by looking at issues now, both trustees and sponsors should be in a better position to act quickly and decisively if the need arises. Sponsoring employers' covenants are likely to be an area of focus given the agreed and new evident economic uncertainty and shock to the UK economy. Businesses should and, we feel, will reconsider their commercial strategies, their business investment decisions and their future market places. For their part, trustees may ask for information, reports and guidance in the coming months from their sponsoring companies as to the anticipated impact on business and how that might itself impact on the covenant provided to the pension scheme. It is often a regular feature of trustee meetings for there to be an update from a representative from the sponsoring company as to how things are going within the business, such updates following the EU vote are likely to be more interesting and challenging than they have been in the past. Trustees will be concerned to ensure that there is clear leadership, and a management group that they can have confidence in given the likely challenges ahead. Trustees should be alive to changes in personnel at a strategic level and seek reassurances if they are concerned. There is also likely to be a direct impact although perhaps not in the short term on the legislation that governs pensions in this country, unfortunately this article is restricted to comment about pension schemes governed by the laws of England and Wales. The laws that apply to and affect pension schemes in England/ Wales have in many cases derived from EU legislation, EU cases and the general requirement for commonality within the EU. In this particular regard, much EU legislation and case law is based on principles of equal treatment / non-discrimination which the EU then expects to be applied to or transposed into the laws of member states. Specific examples of these principles have seen EU legislation transposed in to English law (e.g. The Transfer of Undertakings (Protection of Employment) Regulations 1981 and 2006). The requirement to equalise normal retirement ages for men and women in pension schemes came from the 1990 ECJ case of Barber. This has had a significant and enduring impact on national pension schemes and it has also caused the UK Government to require guaranteed minimum pensions (GMPs) to be equalised in accordance with the same principle. It would take too long to explain the complexities around GMPs and their equalisation; suffice it to state for the moment that a GMP is designed to replicate part of the state pension (formerly the state earnings related pension or SERPS) which certain members' pension schemes contracted out of for scheme membership between April 1977 and April 1997. Given that this requirement in particular has its foundation in EU law, it is possible that an exit from the EU will cause this especially complex (not to say contentious) requirement to be shelved. For many practitioners, this, if it happened, would constitute a welcome development. Notwithstanding the comment above about GMPs, it is not clear which laws, if any, would or might change as a result of the UK leaving the EU. What we can state with confidence is that English / Welsh case law is likely to become the driving regulatory force without EU restriction. In addition, without EU influence, the Government can drive national legislation generally and perhaps UK pensions specifically in the direction it wishes. This could have the benefit of allowing regulation and legislation that is more sensitive to the peculiarities of this country's pension system. The Way Forward The uncertainty currently being experienced in all areas of UK commercial, political and personal life means that the way forward is far from clear. That point having been made, trustees and corporate sponsors of pension schemes can take steps now to get contingency plans in place in anticipation (as opposed to reaction) of possible outcomes. We would expect corporate entities to look at their business strategies and it follows that trustees would then be able to access details of post Brexit plans with a view to gaining reassurance on employer covenant. We would expect trustees to seek investment advice to ensure that any investment decisions are taken good time and on an informed basis. Any particularly EU sensitive investments or securities, particularly likely where pension schemes have a non-UK, EU sponsoring company (whether directly or as part of a group), will require close attention. Trustees should also be alive to the possible anxieties of scheme members and consider whether they want to issue a statement, perhaps drafted jointly with the company, ready to deliver to members concerning the EU vote. Individuals are also likely to face further challenges. The purchase of annuities, particularly at so uncertain a time, should be considered only on receipt of clear (independent) financial advice so; where individuals are able to delay purchases, it would seem sensible to do so (as above on advice). The new flexibilities giving members more freedom require members to be financially astute and now more than ever, they should seek appropriate (financial) advice before making any decision. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 29 Jun 2016 00:00:00 +0100<![CDATA[Paul Carney Heather Chandler ]]><![CDATA[ All around the country, businesses, communities and individuals are coming to terms with a future in which the UK (or what is left of it should another referendum on Scottish independence trigger a fragmentation of the UK) is outside the EU. However, what the future holds remains uncertain and much of the political chat is around the UK's plans and the design of its relationship and future links with the EU. What Now? Leaving the EU is likely to have an impact across the board and in several areas specifically relating to UK pensions. The pound is currently at a 32 year low and the stock market has predictably reacted to the uncertainty. One of the key immediate considerations, therefore, for trustees of pension schemes and sponsors is how to manage and deal with the investment volatility that is likely to be part of the immediate to mid-term future. While it would not be sensible to make any kneejerk decisions, we would expect trustees to be seeking appropriate advice and looking in detail at their investment strategies and portfolios. Nothing may change but it would be best practice to assess with appropriate investment advice whether there are any immediate concerns and, if there are, there is a need for action to be taken. The outcome of such a review is likely to be an agreement to monitor progress (or lack thereof) and may include agreed terms of reference and/or markers which, if triggered, would put into motion a pre-established course of conduct or action. Certainly by looking at issues now, both trustees and sponsors should be in a better position to act quickly and decisively if the need arises. Sponsoring employers' covenants are likely to be an area of focus given the agreed and new evident economic uncertainty and shock to the UK economy. Businesses should and, we feel, will reconsider their commercial strategies, their business investment decisions and their future market places. For their part, trustees may ask for information, reports and guidance in the coming months from their sponsoring companies as to the anticipated impact on business and how that might itself impact on the covenant provided to the pension scheme. It is often a regular feature of trustee meetings for there to be an update from a representative from the sponsoring company as to how things are going within the business, such updates following the EU vote are likely to be more interesting and challenging than they have been in the past. Trustees will be concerned to ensure that there is clear leadership, and a management group that they can have confidence in given the likely challenges ahead. Trustees should be alive to changes in personnel at a strategic level and seek reassurances if they are concerned. There is also likely to be a direct impact although perhaps not in the short term on the legislation that governs pensions in this country, unfortunately this article is restricted to comment about pension schemes governed by the laws of England and Wales. The laws that apply to and affect pension schemes in England/ Wales have in many cases derived from EU legislation, EU cases and the general requirement for commonality within the EU. In this particular regard, much EU legislation and case law is based on principles of equal treatment / non-discrimination which the EU then expects to be applied to or transposed into the laws of member states. Specific examples of these principles have seen EU legislation transposed in to English law (e.g. The Transfer of Undertakings (Protection of Employment) Regulations 1981 and 2006). The requirement to equalise normal retirement ages for men and women in pension schemes came from the 1990 ECJ case of Barber. This has had a significant and enduring impact on national pension schemes and it has also caused the UK Government to require guaranteed minimum pensions (GMPs) to be equalised in accordance with the same principle. It would take too long to explain the complexities around GMPs and their equalisation; suffice it to state for the moment that a GMP is designed to replicate part of the state pension (formerly the state earnings related pension or SERPS) which certain members' pension schemes contracted out of for scheme membership between April 1977 and April 1997. Given that this requirement in particular has its foundation in EU law, it is possible that an exit from the EU will cause this especially complex (not to say contentious) requirement to be shelved. For many practitioners, this, if it happened, would constitute a welcome development. Notwithstanding the comment above about GMPs, it is not clear which laws, if any, would or might change as a result of the UK leaving the EU. What we can state with confidence is that English / Welsh case law is likely to become the driving regulatory force without EU restriction. In addition, without EU influence, the Government can drive national legislation generally and perhaps UK pensions specifically in the direction it wishes. This could have the benefit of allowing regulation and legislation that is more sensitive to the peculiarities of this country's pension system. The Way Forward The uncertainty currently being experienced in all areas of UK commercial, political and personal life means that the way forward is far from clear. That point having been made, trustees and corporate sponsors of pension schemes can take steps now to get contingency plans in place in anticipation (as opposed to reaction) of possible outcomes. We would expect corporate entities to look at their business strategies and it follows that trustees would then be able to access details of post Brexit plans with a view to gaining reassurance on employer covenant. We would expect trustees to seek investment advice to ensure that any investment decisions are taken good time and on an informed basis. Any particularly EU sensitive investments or securities, particularly likely where pension schemes have a non-UK, EU sponsoring company (whether directly or as part of a group), will require close attention. Trustees should also be alive to the possible anxieties of scheme members and consider whether they want to issue a statement, perhaps drafted jointly with the company, ready to deliver to members concerning the EU vote. Individuals are also likely to face further challenges. The purchase of annuities, particularly at so uncertain a time, should be considered only on receipt of clear (independent) financial advice so; where individuals are able to delay purchases, it would seem sensible to do so (as above on advice). The new flexibilities giving members more freedom require members to be financially astute and now more than ever, they should seek appropriate (financial) advice before making any decision. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{9E1E4413-C176-4B7B-92E7-142FB5B0C264}https://www.shoosmiths.co.uk/news/press-releases/11454.aspxEU Referendum result: Shoosmiths experts comment Shoosmiths' experts in competition, employment, real estate, corporate and commercial comment on the EU referendum result. Competition Law Simon Barnes, head of EU and competition at Shoosmiths The UK's competition laws mirror that of the EU's, therefore the vote to leave should in principle have very little, if any, effect on the competition law assessment of commercial agreements. The leave vote could see changes in how competition law applies to certain types of commercial arrangement, such as distribution and licensing agreements, as the current rules come from the European Commission block exemption regulations and guidelines. These could be discarded now that we have opted out of the EU. Disparities between the UK and EU's competition laws may emerge in the long term when differences in levels of enforcement and court judgements become apparent. Should the EU guidance be repealed, both the lawfulness of commercial arrangements and the compliance to varying rules in different jurisdictions will be a concern for businesses. The EU Merger Regulation will now cease to apply with deals in future potentially having to be reviewed under both the Merger Regulation and the UK's domestic merger rules. Control of State aid can now be retained by the UK, possibly allowing the UK to benefit from public support by way of grants and favourable tax regimes. However, respecting the existing EU rules on this may prove crucial in securing access to the EU single market. Similarly the existing public procurement regime will most likely stay put to promote competitiveness in public tender processes and act as a tool in negotiating single market access. Employment Law Charles Rae, employment partner at Shoosmiths Now that the UK has voted to leave the EU, once Brexit is completed the Government could in theory decide to repeal or revise a significant proportion of the UK's employment laws, where these are laws that are required as part of the UK's membership of the EU. A number of employment laws fall into this category, such as many of the anti-discrimination rights, transfer of undertakings regulations, family leave entitlements, collective consultation obligations, duties to agency workers or working time regulations. However, any kind of wholesale change seems unlikely for a number of reasons. Many of the laws in question have become so ingrained within UK businesses that it seems unlikely the Government would take steps to significantly change or remove them, especially where they provide rights to employees that have become widely accepted and valued. Moreover, much of the UK's employment legislation pre-dates the EU imposed ones, and have instead been built upon by later EU requirements, so the foundations are already in place. For instance, the UK already had race and disability discrimination rules before the EU wide requirements were introduced. Many feel that more likely than repealing laws, the Government would take the opportunity to smooth off some of the less popular requirements set down by the EU, for example restrictions on changing terms and conditions following a TUPE transfer. We may also find that freedom of movement within the EU leaves uncertainty as to the status of EU nationals who already work in the UK (and vice versa). Many businesses rely on EU workers and will want to be satisfied that their right to remain in the UK (and to therefore provide their services) is not going to be adversely affected. Equally, it isn't clear what a Brexit will mean for EU nationals currently working in the UK. Many potential solutions have been mooted, such as a compromise that would see current EU migrants given a set period of time to remain in the UK during which they can apply for citizenship, in return for UK citizens currently abroad to remain where they are on the same basis. Real Estate Simon Boss, real estate partner at Shoosmiths Given that the commercial real estate deals flow has already been impacted by the uncertainty that abounded in the run up to the referendum, we may see some clients putting deals on hold in the wake of the leave result. Equally, we may see some pick up in transactions as some investors look to reduce their exposure to the UK market. For some funds and investors this may present an opportunity to acquire at an attractive price. Since its creation, no Member State has ever left the European Union so we have no clear precedent in regards to what happens next and this is as much the case for the real estate sector as it is for the wider commercial arena. Withdrawal from the EU could have major implications for the construction industry, which is already tackling a labour shortage. Tightened immigration control could now exacerbate this issue, given that a large percentage of EU immigrants work in the construction sector. What many will be waiting most anxiously to determine though is how far foreign investment into British real estate will be impacted by our withdrawal from the EU. Will the position of Britain as a primary choice for commercial real estate investment in Europe suffer? Until some certainty returns to the market, this could well reduce the UK's reputation as a safe haven for real estate investment. Corporate - Private Equity Kieran Toal, corporate partner at Shoosmiths We're now in uncharted waters - no member state has left the EU since its inception and how the economy and UK businesses will fare is hard to predict. However in terms of the Private Equity market, we are dealing with the relative unknown, but investors still need to invest. Admittedly there may be a slow start while buyers take stock but, once the wheels begin to turn, there is a plethora of cash-rich private equity houses with capital to invest and UK businesses with rich growth potential aren't going to lose their appeal overnight. There may well be a shift in focus, with businesses which are particularly reliant on European markets becoming less attractive propositions. But for the most part, likelihood is that the inertia caused by uncertainty over the vote will slowly lift. Commercial - Creative industries Laura Harper, partner in the national Intellectual Property &amp; Creative Industries group and head of the IP &amp; Creative Industries at Shoosmiths I think there is going to be concern and disappointment in the creative industries at this outcome. There are many questions that will have to be answered around funding, free movement of people and collaboration across film, television and the performing arts. Certainly it's no exaggeration to say regulation around Trade Mark protection is going to need redrafting creating uncertainty for companies here and abroad who own EU Trade Marks. The 'out' vote means there is going to have to be a transitional period where companies who have an EU Trade Mark will potentially lose protection in the UK and they will need to audit their TM portfolios to identify the areas which will require attention to ensure they apply for the necessary national coverage. As legal advisers we will provide advice on the basis that UK protection under EU trade marks will be eventually lost until we receive clarity on the transitional provisions to ensure that our clients' interests are fully protected. The patent system has taken decades to negotiate - the Unified Patent and Unified Patent Court was due to be implemented in 2017. With this vote this will probably be delayed and add an extra layer of process to the new Unified Patent and Court procedure.Fri, 24 Jun 2016 00:00:00 +0100<![CDATA[ Shoosmiths' experts in competition, employment, real estate, corporate and commercial comment on the EU referendum result. Competition Law Simon Barnes, head of EU and competition at Shoosmiths The UK's competition laws mirror that of the EU's, therefore the vote to leave should in principle have very little, if any, effect on the competition law assessment of commercial agreements. The leave vote could see changes in how competition law applies to certain types of commercial arrangement, such as distribution and licensing agreements, as the current rules come from the European Commission block exemption regulations and guidelines. These could be discarded now that we have opted out of the EU. Disparities between the UK and EU's competition laws may emerge in the long term when differences in levels of enforcement and court judgements become apparent. Should the EU guidance be repealed, both the lawfulness of commercial arrangements and the compliance to varying rules in different jurisdictions will be a concern for businesses. The EU Merger Regulation will now cease to apply with deals in future potentially having to be reviewed under both the Merger Regulation and the UK's domestic merger rules. Control of State aid can now be retained by the UK, possibly allowing the UK to benefit from public support by way of grants and favourable tax regimes. However, respecting the existing EU rules on this may prove crucial in securing access to the EU single market. Similarly the existing public procurement regime will most likely stay put to promote competitiveness in public tender processes and act as a tool in negotiating single market access. Employment Law Charles Rae, employment partner at Shoosmiths Now that the UK has voted to leave the EU, once Brexit is completed the Government could in theory decide to repeal or revise a significant proportion of the UK's employment laws, where these are laws that are required as part of the UK's membership of the EU. A number of employment laws fall into this category, such as many of the anti-discrimination rights, transfer of undertakings regulations, family leave entitlements, collective consultation obligations, duties to agency workers or working time regulations. However, any kind of wholesale change seems unlikely for a number of reasons. Many of the laws in question have become so ingrained within UK businesses that it seems unlikely the Government would take steps to significantly change or remove them, especially where they provide rights to employees that have become widely accepted and valued. Moreover, much of the UK's employment legislation pre-dates the EU imposed ones, and have instead been built upon by later EU requirements, so the foundations are already in place. For instance, the UK already had race and disability discrimination rules before the EU wide requirements were introduced. Many feel that more likely than repealing laws, the Government would take the opportunity to smooth off some of the less popular requirements set down by the EU, for example restrictions on changing terms and conditions following a TUPE transfer. We may also find that freedom of movement within the EU leaves uncertainty as to the status of EU nationals who already work in the UK (and vice versa). Many businesses rely on EU workers and will want to be satisfied that their right to remain in the UK (and to therefore provide their services) is not going to be adversely affected. Equally, it isn't clear what a Brexit will mean for EU nationals currently working in the UK. Many potential solutions have been mooted, such as a compromise that would see current EU migrants given a set period of time to remain in the UK during which they can apply for citizenship, in return for UK citizens currently abroad to remain where they are on the same basis. Real Estate Simon Boss, real estate partner at Shoosmiths Given that the commercial real estate deals flow has already been impacted by the uncertainty that abounded in the run up to the referendum, we may see some clients putting deals on hold in the wake of the leave result. Equally, we may see some pick up in transactions as some investors look to reduce their exposure to the UK market. For some funds and investors this may present an opportunity to acquire at an attractive price. Since its creation, no Member State has ever left the European Union so we have no clear precedent in regards to what happens next and this is as much the case for the real estate sector as it is for the wider commercial arena. Withdrawal from the EU could have major implications for the construction industry, which is already tackling a labour shortage. Tightened immigration control could now exacerbate this issue, given that a large percentage of EU immigrants work in the construction sector. What many will be waiting most anxiously to determine though is how far foreign investment into British real estate will be impacted by our withdrawal from the EU. Will the position of Britain as a primary choice for commercial real estate investment in Europe suffer? Until some certainty returns to the market, this could well reduce the UK's reputation as a safe haven for real estate investment. Corporate - Private Equity Kieran Toal, corporate partner at Shoosmiths We're now in uncharted waters - no member state has left the EU since its inception and how the economy and UK businesses will fare is hard to predict. However in terms of the Private Equity market, we are dealing with the relative unknown, but investors still need to invest. Admittedly there may be a slow start while buyers take stock but, once the wheels begin to turn, there is a plethora of cash-rich private equity houses with capital to invest and UK businesses with rich growth potential aren't going to lose their appeal overnight. There may well be a shift in focus, with businesses which are particularly reliant on European markets becoming less attractive propositions. But for the most part, likelihood is that the inertia caused by uncertainty over the vote will slowly lift. Commercial - Creative industries Laura Harper, partner in the national Intellectual Property &amp; Creative Industries group and head of the IP &amp; Creative Industries at Shoosmiths I think there is going to be concern and disappointment in the creative industries at this outcome. There are many questions that will have to be answered around funding, free movement of people and collaboration across film, television and the performing arts. Certainly it's no exaggeration to say regulation around Trade Mark protection is going to need redrafting creating uncertainty for companies here and abroad who own EU Trade Marks. The 'out' vote means there is going to have to be a transitional period where companies who have an EU Trade Mark will potentially lose protection in the UK and they will need to audit their TM portfolios to identify the areas which will require attention to ensure they apply for the necessary national coverage. As legal advisers we will provide advice on the basis that UK protection under EU trade marks will be eventually lost until we receive clarity on the transitional provisions to ensure that our clients' interests are fully protected. The patent system has taken decades to negotiate - the Unified Patent and Unified Patent Court was due to be implemented in 2017. With this vote this will probably be delayed and add an extra layer of process to the new Unified Patent and Court procedure.]]>{3A124B98-0B09-4A7E-B42B-D1585D58D695}https://www.shoosmiths.co.uk/client-resources/legal-updates/employment-particulars-changes-pension-information-11173.aspxEmployment particulars: changes to pension information From 6 April 2016 the introduction of a single-tier state pension means that pension schemes will no longer be able to 'contract-out'. Consequently, standard employment contracts will need to be amended. Abolition of contracting-out The state pension was previously made up of two elements: the basic state pension and the second state pension (in the past this was known as the state earnings related pension scheme or 'SERPS'). Occupational and personal pension schemes were able to 'contract-out' of the second state pension by agreeing to provide alternative benefits within their scheme which were broadly the same as the state benefits which employees had given up. Contracting-out was abolished for schemes which paid benefits based on defined contributions in April 2012. From April 2016 it is also to be abolished for defined benefit schemes. The Pensions Act 2014 (the Pensions Act) reforms state pensions by introducing a single-tier state pension which will pay a flat rate of £155.65 a week from 6 April 2016. As the second state pension no longer exists, it will no longer be possible to contract-out. Statement of initial employment particulars Section 1 of the Employment Rights Act 1996 (the Act) requires employers to give new employees a statement of their initial employment particulars within two months of beginning employment (the Statement). There is an ongoing obligation to inform the employee of any changes to the particulars set out in this statement within one month. Section 3 of the Act currently requires the Statement to include a note about disciplinary procedures and pensions. Section 3(5) of the Act previously required that note to 'state whether there is in force a contracting-out certificate ...'. It was therefore usual to find a standard clause in employment contracts stating whether or not there was a contracting-out certificate in place. Advice for employers Section 3(5) of the Act was repealed by the Pensions Act with effect from 6 April 2016. This means that employers are no longer be required to confirm in the Statement whether or not there is a contracting-out certificate in place. Standard employment contracts and statements of particulars should therefore be amended for new joiners. For existing employees, there is technically no need to amend employment contracts. However, where employees where previously contracted-out employers may wish to explain the changes to employees as part of it wider communications programme. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Fri, 08 Apr 2016 00:00:00 +0100<![CDATA[Jonathan Naylor ]]><![CDATA[ From 6 April 2016 the introduction of a single-tier state pension means that pension schemes will no longer be able to 'contract-out'. Consequently, standard employment contracts will need to be amended. Abolition of contracting-out The state pension was previously made up of two elements: the basic state pension and the second state pension (in the past this was known as the state earnings related pension scheme or 'SERPS'). Occupational and personal pension schemes were able to 'contract-out' of the second state pension by agreeing to provide alternative benefits within their scheme which were broadly the same as the state benefits which employees had given up. Contracting-out was abolished for schemes which paid benefits based on defined contributions in April 2012. From April 2016 it is also to be abolished for defined benefit schemes. The Pensions Act 2014 (the Pensions Act) reforms state pensions by introducing a single-tier state pension which will pay a flat rate of £155.65 a week from 6 April 2016. As the second state pension no longer exists, it will no longer be possible to contract-out. Statement of initial employment particulars Section 1 of the Employment Rights Act 1996 (the Act) requires employers to give new employees a statement of their initial employment particulars within two months of beginning employment (the Statement). There is an ongoing obligation to inform the employee of any changes to the particulars set out in this statement within one month. Section 3 of the Act currently requires the Statement to include a note about disciplinary procedures and pensions. Section 3(5) of the Act previously required that note to 'state whether there is in force a contracting-out certificate ...'. It was therefore usual to find a standard clause in employment contracts stating whether or not there was a contracting-out certificate in place. Advice for employers Section 3(5) of the Act was repealed by the Pensions Act with effect from 6 April 2016. This means that employers are no longer be required to confirm in the Statement whether or not there is a contracting-out certificate in place. Standard employment contracts and statements of particulars should therefore be amended for new joiners. For existing employees, there is technically no need to amend employment contracts. However, where employees where previously contracted-out employers may wish to explain the changes to employees as part of it wider communications programme. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{D683D899-B3C2-4D64-B712-B35632091965}https://www.shoosmiths.co.uk/client-resources/legal-updates/an-unfortunate-boost-to-potential-scammers-11007.aspxAn unfortunate boost to potential scammers? This article explores the Hughes vs Royal London case and what this means for access to pensions funds. As with many pension issues, the devil is in the detail. This case involved a request for a cash equivalent transfer from a personal pension scheme, which was declined by the administrators, The Royal London Mutual Insurance Society Limited ("Royal London"). The pension holder Mrs Hughes had requested a transfer from her personal pension scheme to an occupational pension scheme to acquire transfer credits within that scheme. She had done so on the basis that she had acquired a right to a cash equivalent transfer. In the initial case the Pensions Ombudsman had found in favour of Royal London who had refused to make the transfer, principally because they were concerned about pension liberation, but also on a technical point as to whether Mrs Hughes was an "earner" for the purposes of the definition of transfer credits. If she was not an earner as defined then she could not acquire transfer credits in her occupational pension scheme and would not have had the right to take a statutory cash equivalent transfer in the way requested. Mrs Hughes appealed the decision of the Ombudsman on two counts. She argued that she was an "earner" for the purposes of the legislation and also that Royal London had a discretion under the terms of her personal pension to pay a non-statutory transfer, and had acted improperly in not deciding to exercise that discretion. Mr Justice Morgan upheld the appeal of Mrs Hughes. He did so on the first of the two points appealed, deciding she was an "earner". Therefore did not find it necessary to look at whether or not Royal London should have used its discretion. This is unfortunate because Royal London would most likely have brought forward more information and evidence around why it did not use its discretion. This would have involved more consideration of its deliberations around the issue of pension liberation and their concerns garnering some judicial guidance on these concerns as reasons for not acting. However, focusing on the technical point, the decision has the potential to make it more likely and easier to come up with arrangements to which members can request transfers which cannot then be blocked by legislation. In looking at the meaning of "earner", Mr Justice Morgan looked at the relevant legislation principally contained in Chapter IV of Part IV of the Pension Schemes Act 1993 (1993 Act) as was relevant at the time and satisfied himself that the schemes concerned were occupational pension schemes and personal pension schemes within the meaning of that Act. He also looked at the right to a cash equivalent and agreed that could be established. The 1993 Act sets out ways of taking a cash equivalent and one of those ways in the case of a member of a personal pension scheme is to use those sums transferred to acquire transfer credits allowed under the rules of an occupational pension scheme. "Transfer Credits" are defined by Section 181 of the 1993 Act as meaning "rights allowed to an earner under the rules of an occupational pension scheme.". The definition therefore references "earners" and this is also defined by Section 181 as follows, "an earner and earnings are to be construed in accordance with Sections 34 and 112 of the Social Security Contributions and Benefits Act 1992. When you look then at the 1992 Act, "earnings" refers to "remuneration or profit derived from an employment" and an "earner" is to be construed accordingly. "Employment" is defined for these purposes as any trade business, profession, office or vocation. Mr Justice Morgan's focus highlighted that nowhere within the chain of definitions or in the cash equivalent entitlement provisions did it specifically state that as an "earner" Mrs Hughes had to be an "earner" in relation to a scheme employer, (an employer in the occupational pension scheme to which she wished to take the transfer credits). The Pensions Ombudsman when he considered the issue felt that it would be "a very strange result" if earners in some completely unrelated context to the scheme concerned could require a transfer value to be paid to that scheme. That view helps when thinking about pension liberation because it requires some definite link between the individual earner and the scheme to which they wish to make the transfer, and so limits the types of arrangements in respect of which a valid statutory request could be made. Therefore following the Pensions Ombudsman's original decision, as there was no such association, Mrs Hughes not receiving any remuneration from a scheme employer in relation to the occupational pension scheme, could not transfer money to that scheme. However, in a clearly laid out decision Mr Justice Morgan referred back to the limitations of the Courts in terms of interpreting the meaning of legislation, being limited to resolving ambiguities and statutory language. Clearly the Court should be able to correct obvious drafting errors in statute but only in very rare cases would that involve imputing words into legislation. The issue with the interpretation that the Pensions Ombudsman had taken was that it involved reading in words that were not contained in the legislation. In a case such as this the aim is not to attempt to reconstruct the intentions of the drafter, but to make sense of the text under consideration. In doing so, the position set out in the case of Inco Europe Limited v First Choice Distribution [2000] 1WLR586 remains instructive. Before deviating from the expressly stated language of legislation, the Court must be clear on three points:- The intended purpose of the statute or provision in question; That by inadvertence the drafts person and Parliament fail to give effect to that purpose in the provision in question; and The substance of the provision Parliament would have made although not necessarily the precise wording had the error in the bill been noticed. All three are important but the third step is perhaps the most important because unless it is clear that what is being done is to implement a position that Parliament would have itself implemented, it would be crossing the boundary between construction and drafting, to insert words into a provision to gain a meaning. The guidance provided by Inco Europe is generally helpful. In this case, however, it means that because the legislation itself does not specifically require an "earner" to be such because they are receiving remuneration from a scheme employer, the effect is to allow a wider range of arrangements to which transfers could be made. It confirms there is no need for a "link" of the payment of remuneration between the employer and the individual transferring in. This result is frustrating as it removes protections for individuals in transfer situations. Unfortunately there is no end to the ingenuity of potential scammers in coming up with ways and means to gain access to money from pension schemes given to them unwittingly by members. This particular point whilst largely a logical application of the principles in Inco Europe, gives rise to a position which in our view the Pensions Ombudsman correctly described as "very odd" and is a point of weakness that can be exploited. It remains crucial that when dealing with transfers of concern, that trustees, employers and administrators seek legal advice as necessary, at the first opportunity. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 25 Feb 2016 00:00:00 Z<![CDATA[Heather Chandler ]]><![CDATA[ This article explores the Hughes vs Royal London case and what this means for access to pensions funds. As with many pension issues, the devil is in the detail. This case involved a request for a cash equivalent transfer from a personal pension scheme, which was declined by the administrators, The Royal London Mutual Insurance Society Limited ("Royal London"). The pension holder Mrs Hughes had requested a transfer from her personal pension scheme to an occupational pension scheme to acquire transfer credits within that scheme. She had done so on the basis that she had acquired a right to a cash equivalent transfer. In the initial case the Pensions Ombudsman had found in favour of Royal London who had refused to make the transfer, principally because they were concerned about pension liberation, but also on a technical point as to whether Mrs Hughes was an "earner" for the purposes of the definition of transfer credits. If she was not an earner as defined then she could not acquire transfer credits in her occupational pension scheme and would not have had the right to take a statutory cash equivalent transfer in the way requested. Mrs Hughes appealed the decision of the Ombudsman on two counts. She argued that she was an "earner" for the purposes of the legislation and also that Royal London had a discretion under the terms of her personal pension to pay a non-statutory transfer, and had acted improperly in not deciding to exercise that discretion. Mr Justice Morgan upheld the appeal of Mrs Hughes. He did so on the first of the two points appealed, deciding she was an "earner". Therefore did not find it necessary to look at whether or not Royal London should have used its discretion. This is unfortunate because Royal London would most likely have brought forward more information and evidence around why it did not use its discretion. This would have involved more consideration of its deliberations around the issue of pension liberation and their concerns garnering some judicial guidance on these concerns as reasons for not acting. However, focusing on the technical point, the decision has the potential to make it more likely and easier to come up with arrangements to which members can request transfers which cannot then be blocked by legislation. In looking at the meaning of "earner", Mr Justice Morgan looked at the relevant legislation principally contained in Chapter IV of Part IV of the Pension Schemes Act 1993 (1993 Act) as was relevant at the time and satisfied himself that the schemes concerned were occupational pension schemes and personal pension schemes within the meaning of that Act. He also looked at the right to a cash equivalent and agreed that could be established. The 1993 Act sets out ways of taking a cash equivalent and one of those ways in the case of a member of a personal pension scheme is to use those sums transferred to acquire transfer credits allowed under the rules of an occupational pension scheme. "Transfer Credits" are defined by Section 181 of the 1993 Act as meaning "rights allowed to an earner under the rules of an occupational pension scheme.". The definition therefore references "earners" and this is also defined by Section 181 as follows, "an earner and earnings are to be construed in accordance with Sections 34 and 112 of the Social Security Contributions and Benefits Act 1992. When you look then at the 1992 Act, "earnings" refers to "remuneration or profit derived from an employment" and an "earner" is to be construed accordingly. "Employment" is defined for these purposes as any trade business, profession, office or vocation. Mr Justice Morgan's focus highlighted that nowhere within the chain of definitions or in the cash equivalent entitlement provisions did it specifically state that as an "earner" Mrs Hughes had to be an "earner" in relation to a scheme employer, (an employer in the occupational pension scheme to which she wished to take the transfer credits). The Pensions Ombudsman when he considered the issue felt that it would be "a very strange result" if earners in some completely unrelated context to the scheme concerned could require a transfer value to be paid to that scheme. That view helps when thinking about pension liberation because it requires some definite link between the individual earner and the scheme to which they wish to make the transfer, and so limits the types of arrangements in respect of which a valid statutory request could be made. Therefore following the Pensions Ombudsman's original decision, as there was no such association, Mrs Hughes not receiving any remuneration from a scheme employer in relation to the occupational pension scheme, could not transfer money to that scheme. However, in a clearly laid out decision Mr Justice Morgan referred back to the limitations of the Courts in terms of interpreting the meaning of legislation, being limited to resolving ambiguities and statutory language. Clearly the Court should be able to correct obvious drafting errors in statute but only in very rare cases would that involve imputing words into legislation. The issue with the interpretation that the Pensions Ombudsman had taken was that it involved reading in words that were not contained in the legislation. In a case such as this the aim is not to attempt to reconstruct the intentions of the drafter, but to make sense of the text under consideration. In doing so, the position set out in the case of Inco Europe Limited v First Choice Distribution [2000] 1WLR586 remains instructive. Before deviating from the expressly stated language of legislation, the Court must be clear on three points:- The intended purpose of the statute or provision in question; That by inadvertence the drafts person and Parliament fail to give effect to that purpose in the provision in question; and The substance of the provision Parliament would have made although not necessarily the precise wording had the error in the bill been noticed. All three are important but the third step is perhaps the most important because unless it is clear that what is being done is to implement a position that Parliament would have itself implemented, it would be crossing the boundary between construction and drafting, to insert words into a provision to gain a meaning. The guidance provided by Inco Europe is generally helpful. In this case, however, it means that because the legislation itself does not specifically require an "earner" to be such because they are receiving remuneration from a scheme employer, the effect is to allow a wider range of arrangements to which transfers could be made. It confirms there is no need for a "link" of the payment of remuneration between the employer and the individual transferring in. This result is frustrating as it removes protections for individuals in transfer situations. Unfortunately there is no end to the ingenuity of potential scammers in coming up with ways and means to gain access to money from pension schemes given to them unwittingly by members. This particular point whilst largely a logical application of the principles in Inco Europe, gives rise to a position which in our view the Pensions Ombudsman correctly described as "very odd" and is a point of weakness that can be exploited. It remains crucial that when dealing with transfers of concern, that trustees, employers and administrators seek legal advice as necessary, at the first opportunity. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{07CE0507-69F5-48CE-A266-EEA53921CCCF}https://www.shoosmiths.co.uk/client-resources/legal-updates/pension-protection-fund-levy-determination-2016-17-10843.aspxPension Schemes: Pension Protection Fund Levy Determination 2016/17 This update looks at the Pension Protection Fund Levy determination for the PPF Levy Year 1 April 2016 to 31 March 2017. In particular, we look at whether there are any action points which pension scheme trustees should be taking as a consequence of the levy determination and the associated guidance. The PPF estimate for the 2016/17 levy year is £615m. This represents a reduction on the 2015/16 estimate which was £635m. This is the second levy year where Employers are assessed by reference to the PPF specific measure of insolvency risk as designed by Experian. Given that we are in the second year of the current levy triennium, relatively little change in the process for this year has been made. The main message from the 2016/17 levy policy statement is that it is business as usual. This is the second year of the current levy triennium so any changes are relatively minimal. The PPF has said that this year it will start looking ahead to the third triennium (beginning 2018). The PPF has made some minor changes as a consequence of the consultation on the draft levy determination. These include the following: Entities that have no secured borrowing because there is an absolute prohibition on borrowing in their governing constitution will be able to certify that this is the case. This means that they will be given a zero score on mortgage ages. In certifying Asset Backed Contribution structures, a valuer will be able to certify an ABC at "no less than £X" rather than certifying a specific figure. The procedure for certifying contingent assets this year is broadly the same as last year. Therefore, Trustees will need to ensure that existing contingent assets are recertified via Exchange no later than 5pm on Thursday 31st March. Last year, the PPF introduced a requirement that when certifying a type A contingent asset, Trustees must provide a statement as to the amount which the trustees are reasonably satisfied that the guarantor could meet (or the value of any cap specified in the guarantee, if this is lower). This is referred to in the PPF guidance as the "realisable recovery." Trustees should not assume that the realisable recovery amount that was certified last year will be the same this year. The PPF has said in its policy statement that it is still seeing a rejection in contingent assets submitted to it. The PPF guide to assessing guarantor strength will be updated and the PPF says that this is the best source of advice on what it is looking for. In the meantime, the PPF's policy statement identifies the following key issues: Trustees should consider the knock-on effects of the employer's insolvency on the rest of the group Trustees must understand the impact of employer insolvency and the guarantor having to pay out on the following: - Inter-company balances - Pooled cash funds - Group-wide banking arrangements Trustees should look behind intra-group arrangements (including trade terms and ownership/ licencing of IP) to consider the impact on the recoverable amount. When considering the value of companies that might be sold, Trustees should ensure that the valuation selected reflects the circumstances a guarantor may face in disposing of an entity. There is the possibility that a distressed sale may take place. Some of the PPF's main changes have been around simplifying the recertification process for asset backed contribution arrangements and for certain types of mortgage. ABC- recertification For schemes who are recertifying an asset backed contribution arrangement ("ABC"), Trustees will need to obtain a valuation for the purposes of the recertification. This valuation may either be an updated version of the existing valuation or a full valuation. Where an updated valuation is obtained, the valuer must: confirm that the previous valuation of the ABC asset was taken into account, opine on the current value of the ABC asset and accept a duty of care to the PPF in providing the opinion. If the underlying legal positon remains the same since the ABC was last certified, then the ABC valuer can continue to rely on previously supplied legal advice. The trustees' legal advisers will need to confirm that their previous advice remains current and that no changes have been made to the terms of the ABC which may materially affect the basis on which the advice was given. The PPF continues to require trustees, in respect of any ABC asset which consists of or includes real estate, to obtain a certificate of title in respect of the ABC assets. This requirement also applies where the ABC asset is a loan note issued by another group company. This has presented practical obstacles for many companies where the assets involved include numerous properties and therefore render the cost of obtaining certificates of title for each property prohibitive. The PPF suggested in its consultation document that it is keeping under review the use of the ABC structure where loan notes are involved and the PPF has suggested that they may bring the levy recognition more into line with that of Type A contingent assets (guarantees) in the future. We will continue to monitor this position for the 2017/18 levy year. For Trustees certifying an ABC for the first time or who do not wish to go through the full process for getting an ABC recognised but instead wish to get a particular value taken into account, the process is largely the same as set out in our note from January 2015. A copy of the update can be found here but please bear in mind that the deadlines should refer to 2016. Recertification process on mortgages Various types of mortgage certified for 2015/16 need not be notified for 16/17. Where a mortgage was certified on grounds of materiality then it will need to be rectified. For any information about the PPF levy process including how to appeal your levy invoice, please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 14 Jan 2016 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ This update looks at the Pension Protection Fund Levy determination for the PPF Levy Year 1 April 2016 to 31 March 2017. In particular, we look at whether there are any action points which pension scheme trustees should be taking as a consequence of the levy determination and the associated guidance. The PPF estimate for the 2016/17 levy year is £615m. This represents a reduction on the 2015/16 estimate which was £635m. This is the second levy year where Employers are assessed by reference to the PPF specific measure of insolvency risk as designed by Experian. Given that we are in the second year of the current levy triennium, relatively little change in the process for this year has been made. The main message from the 2016/17 levy policy statement is that it is business as usual. This is the second year of the current levy triennium so any changes are relatively minimal. The PPF has said that this year it will start looking ahead to the third triennium (beginning 2018). The PPF has made some minor changes as a consequence of the consultation on the draft levy determination. These include the following: Entities that have no secured borrowing because there is an absolute prohibition on borrowing in their governing constitution will be able to certify that this is the case. This means that they will be given a zero score on mortgage ages. In certifying Asset Backed Contribution structures, a valuer will be able to certify an ABC at "no less than £X" rather than certifying a specific figure. The procedure for certifying contingent assets this year is broadly the same as last year. Therefore, Trustees will need to ensure that existing contingent assets are recertified via Exchange no later than 5pm on Thursday 31st March. Last year, the PPF introduced a requirement that when certifying a type A contingent asset, Trustees must provide a statement as to the amount which the trustees are reasonably satisfied that the guarantor could meet (or the value of any cap specified in the guarantee, if this is lower). This is referred to in the PPF guidance as the "realisable recovery." Trustees should not assume that the realisable recovery amount that was certified last year will be the same this year. The PPF has said in its policy statement that it is still seeing a rejection in contingent assets submitted to it. The PPF guide to assessing guarantor strength will be updated and the PPF says that this is the best source of advice on what it is looking for. In the meantime, the PPF's policy statement identifies the following key issues: Trustees should consider the knock-on effects of the employer's insolvency on the rest of the group Trustees must understand the impact of employer insolvency and the guarantor having to pay out on the following: - Inter-company balances - Pooled cash funds - Group-wide banking arrangements Trustees should look behind intra-group arrangements (including trade terms and ownership/ licencing of IP) to consider the impact on the recoverable amount. When considering the value of companies that might be sold, Trustees should ensure that the valuation selected reflects the circumstances a guarantor may face in disposing of an entity. There is the possibility that a distressed sale may take place. Some of the PPF's main changes have been around simplifying the recertification process for asset backed contribution arrangements and for certain types of mortgage. ABC- recertification For schemes who are recertifying an asset backed contribution arrangement ("ABC"), Trustees will need to obtain a valuation for the purposes of the recertification. This valuation may either be an updated version of the existing valuation or a full valuation. Where an updated valuation is obtained, the valuer must: confirm that the previous valuation of the ABC asset was taken into account, opine on the current value of the ABC asset and accept a duty of care to the PPF in providing the opinion. If the underlying legal positon remains the same since the ABC was last certified, then the ABC valuer can continue to rely on previously supplied legal advice. The trustees' legal advisers will need to confirm that their previous advice remains current and that no changes have been made to the terms of the ABC which may materially affect the basis on which the advice was given. The PPF continues to require trustees, in respect of any ABC asset which consists of or includes real estate, to obtain a certificate of title in respect of the ABC assets. This requirement also applies where the ABC asset is a loan note issued by another group company. This has presented practical obstacles for many companies where the assets involved include numerous properties and therefore render the cost of obtaining certificates of title for each property prohibitive. The PPF suggested in its consultation document that it is keeping under review the use of the ABC structure where loan notes are involved and the PPF has suggested that they may bring the levy recognition more into line with that of Type A contingent assets (guarantees) in the future. We will continue to monitor this position for the 2017/18 levy year. For Trustees certifying an ABC for the first time or who do not wish to go through the full process for getting an ABC recognised but instead wish to get a particular value taken into account, the process is largely the same as set out in our note from January 2015. A copy of the update can be found here but please bear in mind that the deadlines should refer to 2016. Recertification process on mortgages Various types of mortgage certified for 2015/16 need not be notified for 16/17. Where a mortgage was certified on grounds of materiality then it will need to be rectified. For any information about the PPF levy process including how to appeal your levy invoice, please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{FAA3C8BE-26EF-43FA-97DE-CB327B1631DD}https://www.shoosmiths.co.uk/client-resources/legal-updates/pension-schemes-changes-to-disclosure-requirements-9896.aspxPension schemes: changes to disclosure requirements 6 April 2015 brought in a range of new options for members with defined contribution pension savings. PENSION SCHEME DISCLOSURE CHECKLIST Following the introduction of a wider range of options for members with defined contribution (money purchase) pension savings, trustees of occupational pension schemes are required to provide information to members about their right to access flexible benefits. We've compiled a checklist that summarises the information that must be provided to members with flexible benefits. Download our checklist today. <!-- .whitepaper --> <!-- .ui-form-note --> Complete the form to start your download. First name Last name Email address Phone number Company If you have any questions, you can review our privacy policy for more information. $(document).ready(function () { if ($('#whitepaperdownloadpanel_WhitepaperPanel').is(":visible")) { $('#WhitepaperDownloadPanel').hide(); } }); $('#DownloadBtn').click(function () { $('#whitepaperdownloadpanel_WhitepaperPanel').show(); $('#WhitepaperDownloadPanel').hide(); }); $('#whitepaperdownloadpanel_WhitepaperFormDownloadButton').click(function () { var pagePosition = $(document).scrollTop(); $('#input_position').val(pagePosition); }); $(document).ready(function () { var pagePosition = ''; $(window).scrollTop(pagePosition); }); $('#whitepaperdownloadpanel_WhitepaperFormDownloadButton').click(function () { $('#whitepaperdownloadpanel_WhitePaperButtonPressed').val('true'); }); <!-- .whitepaper-wrapper --> The new disclosure obligations (set out by way of amendments to the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013) require trustees and scheme managers to provide information to members about their right to access such 'flexible benefits'. Schemes are also required to signpost the pensions guidance provided by Pension Wise (the service set up by the government to help individuals understand their retirement choices) when communicating with members about their options. On top of the legislative requirements, the Pensions Regulator has issued draft guidance on communicating with members about pension flexibilities, in which it recommends that schemes develop generic risk warnings (for example, on the risks of a member underestimating his life expectancy) to provide to members who are considering accessing their benefits. The Pension Wise website includes suggested standard wording that schemes may use. The new requirements Information about flexible benefits needs to be provided at certain trigger points. These points are broadly: (i) when a member first joins a scheme (ii) on request if the member has reached normal minimum pension age (currently age 55) or meets the ill-health condition and (iii) at least four months ahead of a member reaching his normal pension age under the scheme. Schemes may also need to provide information to anyone who may be entitled to access flexible benefits on the death of a member. The inclusion of a requirement to provide information from normal minimum pension age reflects the fact that this is the earliest point at which members are able to access flexible benefits under the new regime. The requirement to provide information will apply if a member: has an opportunity to transfer or otherwise access flexible benefits; requests information about what he may do with his flexible benefits, or informs the trustees/managers that he is considering what to do with his flexible benefits; has reached normal minimum pension age or will do so in the next four months, or meets the ill-health condition has not been given this information in the previous 12 months. Where the requirement applies, trustees must provide certain information within two months of the request having been made. A checklist containing full details of the information to be provided once the requirement is triggered is set out here. Changes to basic scheme information With the coming into force of these amendments, what steps should be taken in order to meet the new requirements. Trustees and administrators should consider what changes will be needed to scheme practices to reflect the new requirements for communicating about flexible benefits. As the revised disclosure regulations amend the basic information required to be provided to new joiners, trustees should consider whether they wish to update the member booklet (where such information is generally set out) or to provide a separate communication to members about the new flexibilities. Next steps The introduction of the new disclosure regulations in April 2014 was an attempt to simplify the existing disclosure regime. However, following the major changes now being made to UK pension provision, a certain level of complexity has been reintroduced in order to ensure that members are fully informed about their options. The extent of the takeup or interest in the options available to individuals in respect of their flexible benefits will become clearer over the next few months. Although few schemes are likely to receive a flood of requests for information immediately post-6 April, trustees and managers will need to assess their current systems and consider what changes must be made to ensure that their processes are not only fit for purpose in readiness for member requests, but also compliant with the new legislative requirements. For more information please contact Jenny Farrell, Suzanne Burrell or your usual Shoosmiths pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.Thu, 25 Jun 2015 00:00:00 +0100<![CDATA[Suzanne Burrell Jenny Farrell ]]><![CDATA[ 6 April 2015 brought in a range of new options for members with defined contribution pension savings. PENSION SCHEME DISCLOSURE CHECKLIST Following the introduction of a wider range of options for members with defined contribution (money purchase) pension savings, trustees of occupational pension schemes are required to provide information to members about their right to access flexible benefits. We've compiled a checklist that summarises the information that must be provided to members with flexible benefits. Download our checklist today. <!-- .whitepaper --> <!-- .ui-form-note --> Complete the form to start your download. First name Last name Email address Phone number Company If you have any questions, you can review our privacy policy for more information. $(document).ready(function () { if ($('#whitepaperdownloadpanel_WhitepaperPanel').is(":visible")) { $('#WhitepaperDownloadPanel').hide(); } }); $('#DownloadBtn').click(function () { $('#whitepaperdownloadpanel_WhitepaperPanel').show(); $('#WhitepaperDownloadPanel').hide(); }); $('#whitepaperdownloadpanel_WhitepaperFormDownloadButton').click(function () { var pagePosition = $(document).scrollTop(); $('#input_position').val(pagePosition); }); $(document).ready(function () { var pagePosition = ''; $(window).scrollTop(pagePosition); }); $('#whitepaperdownloadpanel_WhitepaperFormDownloadButton').click(function () { $('#whitepaperdownloadpanel_WhitePaperButtonPressed').val('true'); }); <!-- .whitepaper-wrapper --> The new disclosure obligations (set out by way of amendments to the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013) require trustees and scheme managers to provide information to members about their right to access such 'flexible benefits'. Schemes are also required to signpost the pensions guidance provided by Pension Wise (the service set up by the government to help individuals understand their retirement choices) when communicating with members about their options. On top of the legislative requirements, the Pensions Regulator has issued draft guidance on communicating with members about pension flexibilities, in which it recommends that schemes develop generic risk warnings (for example, on the risks of a member underestimating his life expectancy) to provide to members who are considering accessing their benefits. The Pension Wise website includes suggested standard wording that schemes may use. The new requirements Information about flexible benefits needs to be provided at certain trigger points. These points are broadly: (i) when a member first joins a scheme (ii) on request if the member has reached normal minimum pension age (currently age 55) or meets the ill-health condition and (iii) at least four months ahead of a member reaching his normal pension age under the scheme. Schemes may also need to provide information to anyone who may be entitled to access flexible benefits on the death of a member. The inclusion of a requirement to provide information from normal minimum pension age reflects the fact that this is the earliest point at which members are able to access flexible benefits under the new regime. The requirement to provide information will apply if a member: has an opportunity to transfer or otherwise access flexible benefits; requests information about what he may do with his flexible benefits, or informs the trustees/managers that he is considering what to do with his flexible benefits; has reached normal minimum pension age or will do so in the next four months, or meets the ill-health condition has not been given this information in the previous 12 months. Where the requirement applies, trustees must provide certain information within two months of the request having been made. A checklist containing full details of the information to be provided once the requirement is triggered is set out here. Changes to basic scheme information With the coming into force of these amendments, what steps should be taken in order to meet the new requirements. Trustees and administrators should consider what changes will be needed to scheme practices to reflect the new requirements for communicating about flexible benefits. As the revised disclosure regulations amend the basic information required to be provided to new joiners, trustees should consider whether they wish to update the member booklet (where such information is generally set out) or to provide a separate communication to members about the new flexibilities. Next steps The introduction of the new disclosure regulations in April 2014 was an attempt to simplify the existing disclosure regime. However, following the major changes now being made to UK pension provision, a certain level of complexity has been reintroduced in order to ensure that members are fully informed about their options. The extent of the takeup or interest in the options available to individuals in respect of their flexible benefits will become clearer over the next few months. Although few schemes are likely to receive a flood of requests for information immediately post-6 April, trustees and managers will need to assess their current systems and consider what changes must be made to ensure that their processes are not only fit for purpose in readiness for member requests, but also compliant with the new legislative requirements. For more information please contact Jenny Farrell, Suzanne Burrell or your usual Shoosmiths pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.]]>{7503E8F5-634F-4AA8-A143-94ABBD34A05B}https://www.shoosmiths.co.uk/client-resources/legal-updates/shared-parental-leave-implications-pension-schemes-9739.aspxShared Parental Leave: implications for pension schemes From 5 April 2015, employees may be entitled to a new type of family leave and pay: Shared Parental Leave (SPL) and Shared Parental Pay (ShPP). The Employment Rights Act 1996 was amended to include provision for SPL by the Children and Families Act 2014 with effect from 1 December 2014. However, the arrangements did not come into force until 5 April 2015. This article considers how the changes may impact occupational pension schemes. In summary Under the new arrangements, employees or their partners may choose to end their maternity or adoption leave or pay early, with the remaining period of leave becoming available as SPL and the remaining pay being available as ShPP, to be shared with the other parent. Parents will be able to decide how to take their SPL - for example, simultaneously, consecutively or with gaps between leave. SPL must be taken within 52 weeks of the date of birth or placement for adoption. The main change is that the Additional Paternity Leave period of up to 26 weeks is no longer available in respect of babies whose expected week of birth is on or after 5 April 2015 (or for children placed for adoption on or after that date). Instead, SPL may be available to fathers. Ordinary and Additional Maternity Leave, Ordinary and Additional Adoption Leave, Ordinary Paternity Leave (of 2 weeks) and (unpaid) Parental Leave continue to be available. However, Additional Paternity Leave may still be taken by fathers of babies with an expected week of birth (and children placed for adoption) before 5 April 2015. Additional Paternity Leave could therefore potentially be taken until April 2016 and there will be an overlap between the two systems. The new rules are complex and it is likely to take employers some time to get to grips with the practicalities of SPL. Employers may not therefore have fully appreciated the implications for their pension schemes. Implications for pension schemes Occupational pension scheme rules invariably cover the benefits and/or contributions applicable during periods of family leave. This is likely to be expressed in terms of Ordinary and Additional Maternity Leave, Ordinary and Additional Paternity Leave and Ordinary and Additional Adoption Leave. These provisions (in particular, any references to Additional Paternity Leave) are likely to require updating to reflect the introduction of SPL. Although employers have some options relating to the pension and death benefits to be provided during periods of SPL, these are subject to the statutory requirements which are broadly: during paid SPL, members of pension schemes continue to accrue rights in the scheme, in a similar way to the previous legislation; for defined benefit schemes, pensionable service continues during paid leave as if the employee was working normally. Compulsory employee contributions are based on the actual pay received; and for defined contribution schemes (including personal pension and stakeholder schemes), during paid leave, employer contributions continue to be based on the pay the employee would receive if he or she was working normally. Compulsory employee contributions continue, but based on actual pay received. Note that employee contributions paid through a salary sacrifice arrangement are treated as employer contributions to the pension scheme and should therefore continue as if the employee was working normally. Action points In light of the new family leave provisions, pension scheme rules should be reviewed, as amendments are likely to be required. A member communication should also be prepared, or the member booklet reviewed and updated as necessary to reflect the new position. Further information More information on the rules of Shared Parental Leave from an employment point of view can be found here. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Fri, 08 May 2015 00:00:00 +0100<![CDATA[Stephen Phillips Tracey Hemingway ]]><![CDATA[ From 5 April 2015, employees may be entitled to a new type of family leave and pay: Shared Parental Leave (SPL) and Shared Parental Pay (ShPP). The Employment Rights Act 1996 was amended to include provision for SPL by the Children and Families Act 2014 with effect from 1 December 2014. However, the arrangements did not come into force until 5 April 2015. This article considers how the changes may impact occupational pension schemes. In summary Under the new arrangements, employees or their partners may choose to end their maternity or adoption leave or pay early, with the remaining period of leave becoming available as SPL and the remaining pay being available as ShPP, to be shared with the other parent. Parents will be able to decide how to take their SPL - for example, simultaneously, consecutively or with gaps between leave. SPL must be taken within 52 weeks of the date of birth or placement for adoption. The main change is that the Additional Paternity Leave period of up to 26 weeks is no longer available in respect of babies whose expected week of birth is on or after 5 April 2015 (or for children placed for adoption on or after that date). Instead, SPL may be available to fathers. Ordinary and Additional Maternity Leave, Ordinary and Additional Adoption Leave, Ordinary Paternity Leave (of 2 weeks) and (unpaid) Parental Leave continue to be available. However, Additional Paternity Leave may still be taken by fathers of babies with an expected week of birth (and children placed for adoption) before 5 April 2015. Additional Paternity Leave could therefore potentially be taken until April 2016 and there will be an overlap between the two systems. The new rules are complex and it is likely to take employers some time to get to grips with the practicalities of SPL. Employers may not therefore have fully appreciated the implications for their pension schemes. Implications for pension schemes Occupational pension scheme rules invariably cover the benefits and/or contributions applicable during periods of family leave. This is likely to be expressed in terms of Ordinary and Additional Maternity Leave, Ordinary and Additional Paternity Leave and Ordinary and Additional Adoption Leave. These provisions (in particular, any references to Additional Paternity Leave) are likely to require updating to reflect the introduction of SPL. Although employers have some options relating to the pension and death benefits to be provided during periods of SPL, these are subject to the statutory requirements which are broadly: during paid SPL, members of pension schemes continue to accrue rights in the scheme, in a similar way to the previous legislation; for defined benefit schemes, pensionable service continues during paid leave as if the employee was working normally. Compulsory employee contributions are based on the actual pay received; and for defined contribution schemes (including personal pension and stakeholder schemes), during paid leave, employer contributions continue to be based on the pay the employee would receive if he or she was working normally. Compulsory employee contributions continue, but based on actual pay received. Note that employee contributions paid through a salary sacrifice arrangement are treated as employer contributions to the pension scheme and should therefore continue as if the employee was working normally. Action points In light of the new family leave provisions, pension scheme rules should be reviewed, as amendments are likely to be required. A member communication should also be prepared, or the member booklet reviewed and updated as necessary to reflect the new position. Further information More information on the rules of Shared Parental Leave from an employment point of view can be found here. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{797DE762-6FB6-4855-8CF6-CD7FFCA82CC0}https://www.shoosmiths.co.uk/client-resources/legal-updates/pension-schemes-charging-caps-and-default-arrangements-9506.aspxPension schemes: charging caps and default arrangements Charges and governance in pension schemes and particularly in workplace pension schemes have been the subject of debate and scrutiny in recent years. From 6 April 2015, a charging cap of 0.75% will apply to default arrangements. This has been introduced by the Occupational Pension Schemes (Charges and Governance) Regulations 2015. The change comes following the DWP's governance review of workplace pensions as well as the Office of Fair Trading study which identified concerns around employees' lack of understanding around pension products and particularly charges. The cap will apply to the default arrangement of a relevant pension scheme. A relevant pension scheme is an occupational pension scheme which provides money purchase benefits. There are some exceptions including schemes where the only money purchase benefits provided are additional voluntary contributions. Non-compliance will be subject to the usual sanctions imposed by the pensions regulator, including the potential for a fine. Further changes included in the regulations introduce a ban on active member discounts and the requirement for schemes to produce an annual governance statement. These changes do not come into force until 6 April 2016 and will be the subject of a later update. A default arrangement is defined in the regulations as one used by a relevant scheme in relation to one or more jobholders and satisfies one or more of the following descriptions: An arrangement under which contributions of one or more workers are allocated to a fund or funds where those workers have not expressed a choice as to where contributions are allocated. This is the typical default arrangement. Where a worker is auto enrolled into a workplace pension scheme, it is done on the basis that members will not be required to make any active decisions to join the pension scheme. One key aspect of the auto enrolment process is where an auto-enrolled worker's pension contributions are invested. Members who do go into the default arrangement are of course able to decide alternative investment choices but it is likely that many individuals, once auto enrolled, simply remain in the default arrangement. It is also likely that the definition of default arrangement will also cover funds which have been substituted by trustees or pension providers as part of a mapping exercise - whether because a fund is underperforming or because a transfer from one provider to another has taken place. Default arrangements will also include arrangements already in place on 6 April 2015 (or the employer's staging date if that comes after 6 April 2015) and arrangements where contributions were first received after that date. In both cases, the investment vehicle will be treated as a default arrangement where 80% or more workers who were contributing members were allocated to that arrangement, even where the member was required to make a choice. This has been described by some as covering the "herd" option. AVCs are excluded from the 80% test. The charging cap is 0.75% annually of the value of the member's rights under the default arrangement, or an equivalent combination charge. The limit in the case of the combination charge structure is 2.5% of the contributions allocated under the default arrangement annually and in relation to an existing rights charge, the percentage of the value of the member's rights corresponding to the contribution percentage charge rate. The legislation is still in draft but it is unlikely that any significant changes will be introduced. Trustees of money purchase schemes should ensure that any default arrangements under their scheme fall within the cap. There are a number of providers going through reorganisation process at the moment to enable schemes used for auto enrolment to comply with the requirements. There is a process that pension scheme trustees can follow if they are unable to ensure that the default fund complies with the charging cap. The following conditions must be met: The trustees or managers of the schemes use their best endeavours to comply with charging limits in relation to one or more members of the default arrangement but have concluded that they are unlikely to be able to comply with those limits; or An event happens outside of the control of the trustees or managers and the trustees or managers have used their best endeavours to mitigate the effect of that event but have determined that because of the event in question, they are unlikely to be able to comply with charge limits. The following conditions must then be met: the trustees or managers have elected to implement an adjustment measure in relation to the default arrangement the trustees or managers have informed the employers whose workers are members of the default arrangement, members of the default arrangement whose contributions have been allocated to that arrangement in the previous 12 month period and the Regulator of the following that the trustees or managers have determined that they are unlikely to be able to comply with the charging measures, the adjustment measure that would be provided and that the charge limits will no longer apply to members of the default arrangement on or after the adjustment date The steps required to be taken as adjustment measures mean a measure where the trustees or managers will no longer allocate future contributions of members of the scheme to the default arrangement and will instead allocate future contributions to another default arrangement or where the trustees or managers will no longer accept future contributions of the members of the default arrangement into the scheme and will not allocate the contributions of any other members of the scheme into the default arrangement. Trustees or managers can, however, decide to give affected members the option to agree to continue to have their future contributions allocated to the default arrangement. The regulations do not apply to contract-based schemes such as group personal pension schemes. However, the FCA will be introducing rules which are largely aligned with the regulations. The Personal Pension Schemes (Restriction on Charges) Instrument 2015 will contain the following restrictions for personal pension schemes and GPPs: a cap on charges in default funds equivalent to 0.75% ban on firms paying or receiving consultancy charges a ban on firms paying commission or charges for services that are not initiated by scheme members from 6 April 2016 a ban on active member discounts from 6 April 2016. As the new flexible defined contribution regime unfolds, the focus on charging and ensuring good outcomes for members will no doubt continue. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 25 Mar 2015 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ Charges and governance in pension schemes and particularly in workplace pension schemes have been the subject of debate and scrutiny in recent years. From 6 April 2015, a charging cap of 0.75% will apply to default arrangements. This has been introduced by the Occupational Pension Schemes (Charges and Governance) Regulations 2015. The change comes following the DWP's governance review of workplace pensions as well as the Office of Fair Trading study which identified concerns around employees' lack of understanding around pension products and particularly charges. The cap will apply to the default arrangement of a relevant pension scheme. A relevant pension scheme is an occupational pension scheme which provides money purchase benefits. There are some exceptions including schemes where the only money purchase benefits provided are additional voluntary contributions. Non-compliance will be subject to the usual sanctions imposed by the pensions regulator, including the potential for a fine. Further changes included in the regulations introduce a ban on active member discounts and the requirement for schemes to produce an annual governance statement. These changes do not come into force until 6 April 2016 and will be the subject of a later update. A default arrangement is defined in the regulations as one used by a relevant scheme in relation to one or more jobholders and satisfies one or more of the following descriptions: An arrangement under which contributions of one or more workers are allocated to a fund or funds where those workers have not expressed a choice as to where contributions are allocated. This is the typical default arrangement. Where a worker is auto enrolled into a workplace pension scheme, it is done on the basis that members will not be required to make any active decisions to join the pension scheme. One key aspect of the auto enrolment process is where an auto-enrolled worker's pension contributions are invested. Members who do go into the default arrangement are of course able to decide alternative investment choices but it is likely that many individuals, once auto enrolled, simply remain in the default arrangement. It is also likely that the definition of default arrangement will also cover funds which have been substituted by trustees or pension providers as part of a mapping exercise - whether because a fund is underperforming or because a transfer from one provider to another has taken place. Default arrangements will also include arrangements already in place on 6 April 2015 (or the employer's staging date if that comes after 6 April 2015) and arrangements where contributions were first received after that date. In both cases, the investment vehicle will be treated as a default arrangement where 80% or more workers who were contributing members were allocated to that arrangement, even where the member was required to make a choice. This has been described by some as covering the "herd" option. AVCs are excluded from the 80% test. The charging cap is 0.75% annually of the value of the member's rights under the default arrangement, or an equivalent combination charge. The limit in the case of the combination charge structure is 2.5% of the contributions allocated under the default arrangement annually and in relation to an existing rights charge, the percentage of the value of the member's rights corresponding to the contribution percentage charge rate. The legislation is still in draft but it is unlikely that any significant changes will be introduced. Trustees of money purchase schemes should ensure that any default arrangements under their scheme fall within the cap. There are a number of providers going through reorganisation process at the moment to enable schemes used for auto enrolment to comply with the requirements. There is a process that pension scheme trustees can follow if they are unable to ensure that the default fund complies with the charging cap. The following conditions must be met: The trustees or managers of the schemes use their best endeavours to comply with charging limits in relation to one or more members of the default arrangement but have concluded that they are unlikely to be able to comply with those limits; or An event happens outside of the control of the trustees or managers and the trustees or managers have used their best endeavours to mitigate the effect of that event but have determined that because of the event in question, they are unlikely to be able to comply with charge limits. The following conditions must then be met: the trustees or managers have elected to implement an adjustment measure in relation to the default arrangement the trustees or managers have informed the employers whose workers are members of the default arrangement, members of the default arrangement whose contributions have been allocated to that arrangement in the previous 12 month period and the Regulator of the following that the trustees or managers have determined that they are unlikely to be able to comply with the charging measures, the adjustment measure that would be provided and that the charge limits will no longer apply to members of the default arrangement on or after the adjustment date The steps required to be taken as adjustment measures mean a measure where the trustees or managers will no longer allocate future contributions of members of the scheme to the default arrangement and will instead allocate future contributions to another default arrangement or where the trustees or managers will no longer accept future contributions of the members of the default arrangement into the scheme and will not allocate the contributions of any other members of the scheme into the default arrangement. Trustees or managers can, however, decide to give affected members the option to agree to continue to have their future contributions allocated to the default arrangement. The regulations do not apply to contract-based schemes such as group personal pension schemes. However, the FCA will be introducing rules which are largely aligned with the regulations. The Personal Pension Schemes (Restriction on Charges) Instrument 2015 will contain the following restrictions for personal pension schemes and GPPs: a cap on charges in default funds equivalent to 0.75% ban on firms paying or receiving consultancy charges a ban on firms paying commission or charges for services that are not initiated by scheme members from 6 April 2016 a ban on active member discounts from 6 April 2016. As the new flexible defined contribution regime unfolds, the focus on charging and ensuring good outcomes for members will no doubt continue. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{938E4D44-98D6-414B-B0D5-C8297ED379B3}https://www.shoosmiths.co.uk/client-resources/legal-updates/occupational-pension-schemes-changes-transfer-rights-9492.aspxOccupational pension schemes - changes to transfer rights and appropriate independent advice The Pension Schemes Act 2015 ('Act') amends the statutory rights to transfers from Occupational Pension Schemes ('OPS') so that members will (from 6 April 2015) have a statutory right to a partial transfer value. The legislation also introduces requirements around advice and the new guidance guarantee for defined contribution pension benefits. These changes are being introduced to help the new flexibility relating to defined contribution benefits. Partial transfers Prior to 2006, the scope for OPS to allow partial transfers of benefits was very limited and applied only in relation to contracted-out benefits. Since the introduction of tax implication in 2006, it has been possible for partial transfers to be taken from a pension scheme if a pension scheme's rules allow it. There has previously been no statutory right to partial transfer of benefits. In order to facilitate access to some of the new flexibilities around defined contribution pensions, the Act makes various amendments to existing pensions legislation. The Act was originally drafted to introduce a framework for defined ambition pensions but amendments tying in with the new flexibilities were introduced as the Act was going through parliament. The statutory transfer rights contained in the Pension Schemes Act 1993 are amended so that members who have more than one category of benefit within the same pension scheme will have a statutory right to transfer one category of benefit while leaving other benefits behind. Benefits for these purposes will fall into one of three categories: money purchase benefits flexible benefits other than money purchase benefits benefits that are not flexible benefits This change is relevant for all schemes, as it will affect any scheme where AVCs are provided on a money purchase basis. The legislation will restrict pension scheme trustees from requiring a total transfer of benefits. Schemes may insist that a total transfer of one category of benefits is required but a scheme cannot force a member who wishes to transfer one category of benefits to also transfer all categories of benefits. Additionally, it will not be possible to prevent a member who exercises a right to a partial transfer from accruing rights to another category of membership. A member could therefore retain active membership of a defined contribution section while transferring out his closed defined benefit section benefits. Some of the existing restrictions contained in the legislation will remain in place. For example, a member can only take a statutory transfer in relation to non flexible benefits if they are more than 12 months away from normal pension age. This means that any scheme which wishes to offer a member the right to take a transfer of their DB benefits when they are within 12 months of normal retirement age will need to provide a non statutory right to transfer under the rules. The 12 months limit will not apply to flexible benefits. There is currently an existing right in legislation for a member who leaves service within a year of normal retirement age a right to take their benefits within six months of leaving pensionable service even though they are otherwise within a year of normal pension age. The Pension Schemes Act once amended by the new Act, will no longer allow this particular flexibility. The right to a statutory transfer in respect of a particular category of benefits will only apply if the following conditions are met: a member is no longer accruing benefits in that category if the benefits are not flexible benefits then they stopped accruing at least a year before normal pension age no crystallisation event in relation to those benefits have occurred. Crystallisation events are defined as one of the following pension has begun; an annuity has been purchased; sums have been designated for the payment of drawdown benefit. Appropriate independent advice The government considered whether to prohibit defined benefit to defined contribution transfers in private sector schemes as they have done in certain public sector schemes, but the government decided not to implement this. There will however be a statutory requirement on transferring scheme trustees to ensure that members who wish to take a transfer from a defined benefit to a defined contribution pension scheme must take independent financial advice. Schemes may see an increased interest in transfers out of pension schemes because members may be attracted by the new defined contribution flexibility which is available. Regulations will set out the scope of any exceptions and these include an exception in relation to members with CETVs of less than £30,000 (regulation 5 of the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015). From 6 April 2015, trustees will be required to check that a member has received 'appropriate independent advice' from an FCS registered financial adviser before taking any of the following steps: converting safeguarded benefits (general defined benefits) to flexible benefits (money purchase or cash balance) making a transfer payment in respect of safeguarded benefits to a scheme in which a member will acquire flexible benefits paying a lump sum in respect of safeguarded benefits that will be an uncrystallised fund pension lump sum. At present, the legislation does not allow for this anyway The Occupational Pension Schemes (Consequential and Miscellaneous amendment) Regulations 2015 set out the procedure which trustees will be required to follow. For trustees, the key compliance points are ensuring that they notify members who request transfer values of the advice requirement and ensuring that a record of the checks they take is kept. Trustees are not required to obtain a copy of the advice or to refuse to make a transfer payment where a member has been advised against taking a transfer but still wishes to go ahead. The pensions regulator's draft guidance on DB to DC transfers recognises this and says that it is not the trustees' role to make a decision which the trustees regard as inappropriate for that member. The legislation also introduces a statutory amendment power. This amendment power will enable trustees to amend rules so that if trustees are required to check that a member has received appropriate independent advice, the trustees have carried out that check but the check did not confirm that the member/ survivor had received appropriate independent advice, the trustee is not required to make the transfer. This is reflected in the amended transfer legislation anyway although trustees should also look at what, if any rights there are under pension scheme rules to a non-statutory transfer. A failure by the trustees to undertake the checks will result in a fine on the trustees but will not affect the validity of the transfer. The regulations specify that where an employer is undertaking an incentive exercise to encourage members to transfer benefits out of the pension scheme, it will need to arrange and pay for independent advice. It remains to be seen whether the new defined contribution flexibility will make transfers out of defined benefit schemes more attractive or whether the requirement to engage a financial adviser will put some people off. This may depend on what, if any, additional flexibility is introduced into occupational pension schemes. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 25 Mar 2015 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ The Pension Schemes Act 2015 ('Act') amends the statutory rights to transfers from Occupational Pension Schemes ('OPS') so that members will (from 6 April 2015) have a statutory right to a partial transfer value. The legislation also introduces requirements around advice and the new guidance guarantee for defined contribution pension benefits. These changes are being introduced to help the new flexibility relating to defined contribution benefits. Partial transfers Prior to 2006, the scope for OPS to allow partial transfers of benefits was very limited and applied only in relation to contracted-out benefits. Since the introduction of tax implication in 2006, it has been possible for partial transfers to be taken from a pension scheme if a pension scheme's rules allow it. There has previously been no statutory right to partial transfer of benefits. In order to facilitate access to some of the new flexibilities around defined contribution pensions, the Act makes various amendments to existing pensions legislation. The Act was originally drafted to introduce a framework for defined ambition pensions but amendments tying in with the new flexibilities were introduced as the Act was going through parliament. The statutory transfer rights contained in the Pension Schemes Act 1993 are amended so that members who have more than one category of benefit within the same pension scheme will have a statutory right to transfer one category of benefit while leaving other benefits behind. Benefits for these purposes will fall into one of three categories: money purchase benefits flexible benefits other than money purchase benefits benefits that are not flexible benefits This change is relevant for all schemes, as it will affect any scheme where AVCs are provided on a money purchase basis. The legislation will restrict pension scheme trustees from requiring a total transfer of benefits. Schemes may insist that a total transfer of one category of benefits is required but a scheme cannot force a member who wishes to transfer one category of benefits to also transfer all categories of benefits. Additionally, it will not be possible to prevent a member who exercises a right to a partial transfer from accruing rights to another category of membership. A member could therefore retain active membership of a defined contribution section while transferring out his closed defined benefit section benefits. Some of the existing restrictions contained in the legislation will remain in place. For example, a member can only take a statutory transfer in relation to non flexible benefits if they are more than 12 months away from normal pension age. This means that any scheme which wishes to offer a member the right to take a transfer of their DB benefits when they are within 12 months of normal retirement age will need to provide a non statutory right to transfer under the rules. The 12 months limit will not apply to flexible benefits. There is currently an existing right in legislation for a member who leaves service within a year of normal retirement age a right to take their benefits within six months of leaving pensionable service even though they are otherwise within a year of normal pension age. The Pension Schemes Act once amended by the new Act, will no longer allow this particular flexibility. The right to a statutory transfer in respect of a particular category of benefits will only apply if the following conditions are met: a member is no longer accruing benefits in that category if the benefits are not flexible benefits then they stopped accruing at least a year before normal pension age no crystallisation event in relation to those benefits have occurred. Crystallisation events are defined as one of the following pension has begun; an annuity has been purchased; sums have been designated for the payment of drawdown benefit. Appropriate independent advice The government considered whether to prohibit defined benefit to defined contribution transfers in private sector schemes as they have done in certain public sector schemes, but the government decided not to implement this. There will however be a statutory requirement on transferring scheme trustees to ensure that members who wish to take a transfer from a defined benefit to a defined contribution pension scheme must take independent financial advice. Schemes may see an increased interest in transfers out of pension schemes because members may be attracted by the new defined contribution flexibility which is available. Regulations will set out the scope of any exceptions and these include an exception in relation to members with CETVs of less than £30,000 (regulation 5 of the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015). From 6 April 2015, trustees will be required to check that a member has received 'appropriate independent advice' from an FCS registered financial adviser before taking any of the following steps: converting safeguarded benefits (general defined benefits) to flexible benefits (money purchase or cash balance) making a transfer payment in respect of safeguarded benefits to a scheme in which a member will acquire flexible benefits paying a lump sum in respect of safeguarded benefits that will be an uncrystallised fund pension lump sum. At present, the legislation does not allow for this anyway The Occupational Pension Schemes (Consequential and Miscellaneous amendment) Regulations 2015 set out the procedure which trustees will be required to follow. For trustees, the key compliance points are ensuring that they notify members who request transfer values of the advice requirement and ensuring that a record of the checks they take is kept. Trustees are not required to obtain a copy of the advice or to refuse to make a transfer payment where a member has been advised against taking a transfer but still wishes to go ahead. The pensions regulator's draft guidance on DB to DC transfers recognises this and says that it is not the trustees' role to make a decision which the trustees regard as inappropriate for that member. The legislation also introduces a statutory amendment power. This amendment power will enable trustees to amend rules so that if trustees are required to check that a member has received appropriate independent advice, the trustees have carried out that check but the check did not confirm that the member/ survivor had received appropriate independent advice, the trustee is not required to make the transfer. This is reflected in the amended transfer legislation anyway although trustees should also look at what, if any rights there are under pension scheme rules to a non-statutory transfer. A failure by the trustees to undertake the checks will result in a fine on the trustees but will not affect the validity of the transfer. The regulations specify that where an employer is undertaking an incentive exercise to encourage members to transfer benefits out of the pension scheme, it will need to arrange and pay for independent advice. It remains to be seen whether the new defined contribution flexibility will make transfers out of defined benefit schemes more attractive or whether the requirement to engage a financial adviser will put some people off. This may depend on what, if any, additional flexibility is introduced into occupational pension schemes. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{8E33E529-0DA1-4B84-806C-EBDA30E875BE}https://www.shoosmiths.co.uk/client-resources/legal-updates/defined-contribution-pension-freedom-choice-flexibility-9486.aspxDefined contribution pension schemes: freedom, choice and flexibility In the 2014 Budget it was announced that members with defined contribution pension savings would no longer be required to buy an annuity on retirement. A range of flexible options will from 6 April 2015 be available, including the ability to take entire pension savings as a lump sum. This is an unprecedented change in UK pension provision and potentially more far-reaching than the tax-simplification introduced in 2006. The Taxation of Pensions Act 2014 comes into force on 6 April 2015 and implements defined contribution flexibility so that an individual's defined contributions pension savings can be accessed in one of the following ways: buying a lifetime annuity a scheme pension (if available from the pension scheme) draw-down or short term annuity (known as flexi access drawdown) withdrawing the fund in one or more cash lump sums (known as uncrystallised funds pensions lump sums) An individual will be able to access their defined contribution pension savings at normal minimum pension age or on ill health. Normal minimum pension age is currently 55 years but this will increase to 57 years in 2028. The government will keep this under review as state pension age is reviewed. Currently a member is entitled to take a pension commencement lump sum to the value of 25% of their pension savings. The pension commencement lump sum will continue to be available as an option where a member takes either a lifetime annuity, a scheme pension or a drawdown pension or short term annuity. For an uncrystallised funds lump sum payment, the treatment is slightly different. 25% of an uncrystallised lump sum payment will be tax free and tax payable on the rest set at the individual's marginal tax rate. For individuals who access their money purchase benefits, a special annual allowance of £10,000 will be introduced in relation to any further money purchase benefit saving that a member enjoys. Individuals should take care to consider the tax implications of payment of an uncrystallised lump sum as there is the potential to find themselves paying a higher rate of tax. For defined contribution pension schemes, the new flexibilities will have significant interest for members. Trustees and employers should be checking whether the scheme rules allow for any benefits other than an annuity and pension commencement lump sum. Historically, some schemes have allowed for a scheme pension but this is more unusual now that such schemes would be subject to scheme funding requirements. Additionally, the new DC flexibility will be of interest to hybrid schemes where benefits are provided on both a defined benefit and defined contribution basis. The exact impact will depend on how the scheme is structured, as the legislation refers to the concept of a defined contribution 'arrangement'. Additionally, in a hybrid scheme, there may be underpins which apply. Some hybrid schemes provide a defined contribution benefit on earnings in excess of a certain amount. Again, the options available may depend on what the rules say happens at retirement. The legislation refers to defined contribution arrangements, so rules should be checked, and amended where necessary to enable defined contribution arrangements to be identified. Trustees of pension schemes set up on a defined benefit basis may be thinking that the new flexibility is not relevant for their scheme. However, where AVCs are provided on a money purchase basis then members will potentially have access to the new DC flexibility. In many cases, AVCs are applied in settlement of the member's lump sum but in some situations, the new flexibility may be attractive for members who have AVC funds which exceed the 25% limit for tax free cash but for whom an annuity is less attractive. The legislation includes an overriding power to pay flexible benefits even if scheme rules have not been amended. This will be useful in the short term as schemes and employers may not yet have decided exactly what they want to offer and how they want to offer it. The overriding power is permissive not compulsory, so if the trustees chose not to offer the full flexibility, then the legislation does not require them to. Additionally a statutory power of amendment will be introduced so that trustees can make changes to their rules using that statutory power. There is a possibility that a future government may look at extending the flexibilities to defined benefit pensions. In the meantime, members in such schemes may start looking at transfers out of the scheme in order to take advantage of the new flexibility. Defined contribution guidance As part of the introduction of the new defined contribution flexibilities, the promised guidance guarantee will be introduced. This will enable anyone with defined contribution benefits, free and impartial guidance on the range of options available at retirement. The government response to the consultation confirms that individuals with money purchase additional voluntary contributions will be able to access the flexibilities. This means that trustees of defined benefit schemes will need to signpost any members with additional voluntary contributions to guidance providers. In practice, the options available for members with AVCs will depend on scheme rules. Guidance will be available online via a new website Pensionswise, in person from the Citizens' Advice Bureau or by telephone from the Pensions Advisory Service. Actual options available will depend on what is available under the scheme rules in question. It is not known how far specific scheme provisions will be taken into account in the guidance provided. The FCA has announced that pension providers will be required to ask individuals applying for flexible access to DC benefits about key aspects of circumstances relating to the choice the individual is making and give appropriate risk warnings. The DWP is looking at ways of extending the FCA requirement to trust-based schemes. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 25 Mar 2015 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ In the 2014 Budget it was announced that members with defined contribution pension savings would no longer be required to buy an annuity on retirement. A range of flexible options will from 6 April 2015 be available, including the ability to take entire pension savings as a lump sum. This is an unprecedented change in UK pension provision and potentially more far-reaching than the tax-simplification introduced in 2006. The Taxation of Pensions Act 2014 comes into force on 6 April 2015 and implements defined contribution flexibility so that an individual's defined contributions pension savings can be accessed in one of the following ways: buying a lifetime annuity a scheme pension (if available from the pension scheme) draw-down or short term annuity (known as flexi access drawdown) withdrawing the fund in one or more cash lump sums (known as uncrystallised funds pensions lump sums) An individual will be able to access their defined contribution pension savings at normal minimum pension age or on ill health. Normal minimum pension age is currently 55 years but this will increase to 57 years in 2028. The government will keep this under review as state pension age is reviewed. Currently a member is entitled to take a pension commencement lump sum to the value of 25% of their pension savings. The pension commencement lump sum will continue to be available as an option where a member takes either a lifetime annuity, a scheme pension or a drawdown pension or short term annuity. For an uncrystallised funds lump sum payment, the treatment is slightly different. 25% of an uncrystallised lump sum payment will be tax free and tax payable on the rest set at the individual's marginal tax rate. For individuals who access their money purchase benefits, a special annual allowance of £10,000 will be introduced in relation to any further money purchase benefit saving that a member enjoys. Individuals should take care to consider the tax implications of payment of an uncrystallised lump sum as there is the potential to find themselves paying a higher rate of tax. For defined contribution pension schemes, the new flexibilities will have significant interest for members. Trustees and employers should be checking whether the scheme rules allow for any benefits other than an annuity and pension commencement lump sum. Historically, some schemes have allowed for a scheme pension but this is more unusual now that such schemes would be subject to scheme funding requirements. Additionally, the new DC flexibility will be of interest to hybrid schemes where benefits are provided on both a defined benefit and defined contribution basis. The exact impact will depend on how the scheme is structured, as the legislation refers to the concept of a defined contribution 'arrangement'. Additionally, in a hybrid scheme, there may be underpins which apply. Some hybrid schemes provide a defined contribution benefit on earnings in excess of a certain amount. Again, the options available may depend on what the rules say happens at retirement. The legislation refers to defined contribution arrangements, so rules should be checked, and amended where necessary to enable defined contribution arrangements to be identified. Trustees of pension schemes set up on a defined benefit basis may be thinking that the new flexibility is not relevant for their scheme. However, where AVCs are provided on a money purchase basis then members will potentially have access to the new DC flexibility. In many cases, AVCs are applied in settlement of the member's lump sum but in some situations, the new flexibility may be attractive for members who have AVC funds which exceed the 25% limit for tax free cash but for whom an annuity is less attractive. The legislation includes an overriding power to pay flexible benefits even if scheme rules have not been amended. This will be useful in the short term as schemes and employers may not yet have decided exactly what they want to offer and how they want to offer it. The overriding power is permissive not compulsory, so if the trustees chose not to offer the full flexibility, then the legislation does not require them to. Additionally a statutory power of amendment will be introduced so that trustees can make changes to their rules using that statutory power. There is a possibility that a future government may look at extending the flexibilities to defined benefit pensions. In the meantime, members in such schemes may start looking at transfers out of the scheme in order to take advantage of the new flexibility. Defined contribution guidance As part of the introduction of the new defined contribution flexibilities, the promised guidance guarantee will be introduced. This will enable anyone with defined contribution benefits, free and impartial guidance on the range of options available at retirement. The government response to the consultation confirms that individuals with money purchase additional voluntary contributions will be able to access the flexibilities. This means that trustees of defined benefit schemes will need to signpost any members with additional voluntary contributions to guidance providers. In practice, the options available for members with AVCs will depend on scheme rules. Guidance will be available online via a new website Pensionswise, in person from the Citizens' Advice Bureau or by telephone from the Pensions Advisory Service. Actual options available will depend on what is available under the scheme rules in question. It is not known how far specific scheme provisions will be taken into account in the guidance provided. The FCA has announced that pension providers will be required to ask individuals applying for flexible access to DC benefits about key aspects of circumstances relating to the choice the individual is making and give appropriate risk warnings. The DWP is looking at ways of extending the FCA requirement to trust-based schemes. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{6BBCE2E9-23F0-4701-B281-ECFAB3BA0B95}https://www.shoosmiths.co.uk/client-resources/legal-updates/project-waltz-has-the-music-stopped-9355.aspxProject Waltz - Has the music stopped? The long awaited judgment on remedies in the case of IBM United Kingdom Holdings Ltd and another v Dalgleish and others has now been handed down. The case concerned the attempted closure of some of IBM's UK defined benefit pension schemes in a suite of changes known as Project Waltz. Project Waltz followed on from previous changes (Projects Ocean and Solo). In the communications for these previous projects, IBM had included statements that there would not be any further changes to the defined benefit plans for some time which, it was held, had created 'reasonable expectations' in the eyes of the members that the schemes would continue without further changes. In his 2014 judgment, Mr Justice Warren held that IBM's conduct of Project Waltz, in particular the way the consultation exercise was carried out, was sufficient to justify members questioning the good faith and integrity of the company. This was, in Warren J's view, a breach of IBM's Imperial duty (an implied duty of good faith) and its contractual duty of trust and confidence. This remedies judgment sets out how the IBM pension schemes concerned should now be administered and the remedies available to affected members. The judgment is very much in the members' favour, requiring IBM to unravel many of the changes made by Project Waltz, so very real consequences for IBM. In summary the remedies are as follows: Closure of the plans to future defined benefit accrual - this was carried out by way of serving 'exclusion notices' which stated that there would be no further active defined benefit membership after the date of closure. Warren J held that these notices were a breach of IBM's Imperial duty and also its contractual duty of trust and confidence. As a result, he held that the notices, although not void, were voidable and liable to be set aside in their entirety at the election of each individual affected member. Each member can therefore elect to set aside the applicable notice. They will then be treated as continuing in active membership (continuing to accrue defined benefits) beyond the purported closure date of 6 April 2011. In order to end their continuing active membership IBM will now have to serve fresh notices with prospective effect (before which a further period of consultation will need to be carried out). Warren confirmed that the trustee should administer the schemes on the basis that affected members are entitled to have the exclusion notices set aside. This could have a substantial financial impact on IBM with (potentially) all members being entitled to at least an addition four years of active membership. Non-pensionability agreements - these were agreements with members to prevent future pay increases from being pensionable on a defined benefits basis. Warren J held that these agreements were not, of themselves, contracts and, as such, were unenforceable. Any attempt by IBM to enforce the contracts would be a further breach of its duty of trust and confidence. As a result, salary increases since 2009 (although granted on the basis that they were not pensionable) are to be retained and treated as pensionable. Members who did not sign the agreements (thus not being entitled to any salary increases under Project Waltz) are entitled to damages to reflect the salary (and related benefits) they would have received but for Project Waltz. Favourable terms for early retirement - a period of two months was given during which favourable terms for early retirement were offered, after which a new early retirement policy was introduced (see below). During this time, it was claimed that a significant number of members retired earlier than they would otherwise have done. It was held that this also breached IBM's Imperial duty and its contractual duty of trust and confidence, giving members the ability to claim damages or equitable compensation. The members are, however, still to be treated as having taken early retirement. Introduction of new early retirement policy - a new, cost neutral, policy was introduced which was more restrictive than the old policy. Warren J has held that this policy cannot be relied upon against members who would have been entitled to early retirement benefits under the old policy, had it remained in force (the court held that this would apply to all members who left service between 6 April 2010 and 31 March 2014). However, IBM is free to adopt a new policy after 31 March 2014, subject to adequate notice being given. For those members who retired during the above four year period, the trustee should now provide them with the benefits (including retrospective adjustments) which they would have been entitled to under the old early retirement policy on the basis that IBM's consent was either not required or that it would have been given. Consultation - Warren J was very critical of IBM's consultation process, holding that IBM had already decided to make the changes, had provided misleading information, and that the consultation was a mere rubber stamping exercise. IBM had therefore failed to undergo a proper consultation exercise with the members. This was held once again to be a breach of IBM's duty of trust and confidence, giving rise to remedies for breach of contract, injunctive relief and damages. We understand IBM has indicated it will seek permission to appeal this decision so the final outcome remains uncertain. Although this case was dependent on its own facts, given the serious implications to IBM of the remedies, and the comments made by Warren J in his 2014 judgment, it is clear that there are some important lessons for employers wishing to make changes to their pension schemes: Beware of statements made in previous member communications which might give rise to 'reasonable expectations' about the future of the scheme. If such statements have been made, consider carefully the timing of any subsequent changes. Consult properly, with accurate and complete communications, keeping an open mind and considering all representations made. Take care when communicating internally to avoid statements which might be interpreted to suggest that a decision has already been made before the end of the consultation period. Ensure that you have a robust business case for the proposed changes. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 04 Mar 2015 00:00:00 Z<![CDATA[Heather Chandler ]]><![CDATA[ The long awaited judgment on remedies in the case of IBM United Kingdom Holdings Ltd and another v Dalgleish and others has now been handed down. The case concerned the attempted closure of some of IBM's UK defined benefit pension schemes in a suite of changes known as Project Waltz. Project Waltz followed on from previous changes (Projects Ocean and Solo). In the communications for these previous projects, IBM had included statements that there would not be any further changes to the defined benefit plans for some time which, it was held, had created 'reasonable expectations' in the eyes of the members that the schemes would continue without further changes. In his 2014 judgment, Mr Justice Warren held that IBM's conduct of Project Waltz, in particular the way the consultation exercise was carried out, was sufficient to justify members questioning the good faith and integrity of the company. This was, in Warren J's view, a breach of IBM's Imperial duty (an implied duty of good faith) and its contractual duty of trust and confidence. This remedies judgment sets out how the IBM pension schemes concerned should now be administered and the remedies available to affected members. The judgment is very much in the members' favour, requiring IBM to unravel many of the changes made by Project Waltz, so very real consequences for IBM. In summary the remedies are as follows: Closure of the plans to future defined benefit accrual - this was carried out by way of serving 'exclusion notices' which stated that there would be no further active defined benefit membership after the date of closure. Warren J held that these notices were a breach of IBM's Imperial duty and also its contractual duty of trust and confidence. As a result, he held that the notices, although not void, were voidable and liable to be set aside in their entirety at the election of each individual affected member. Each member can therefore elect to set aside the applicable notice. They will then be treated as continuing in active membership (continuing to accrue defined benefits) beyond the purported closure date of 6 April 2011. In order to end their continuing active membership IBM will now have to serve fresh notices with prospective effect (before which a further period of consultation will need to be carried out). Warren confirmed that the trustee should administer the schemes on the basis that affected members are entitled to have the exclusion notices set aside. This could have a substantial financial impact on IBM with (potentially) all members being entitled to at least an addition four years of active membership. Non-pensionability agreements - these were agreements with members to prevent future pay increases from being pensionable on a defined benefits basis. Warren J held that these agreements were not, of themselves, contracts and, as such, were unenforceable. Any attempt by IBM to enforce the contracts would be a further breach of its duty of trust and confidence. As a result, salary increases since 2009 (although granted on the basis that they were not pensionable) are to be retained and treated as pensionable. Members who did not sign the agreements (thus not being entitled to any salary increases under Project Waltz) are entitled to damages to reflect the salary (and related benefits) they would have received but for Project Waltz. Favourable terms for early retirement - a period of two months was given during which favourable terms for early retirement were offered, after which a new early retirement policy was introduced (see below). During this time, it was claimed that a significant number of members retired earlier than they would otherwise have done. It was held that this also breached IBM's Imperial duty and its contractual duty of trust and confidence, giving members the ability to claim damages or equitable compensation. The members are, however, still to be treated as having taken early retirement. Introduction of new early retirement policy - a new, cost neutral, policy was introduced which was more restrictive than the old policy. Warren J has held that this policy cannot be relied upon against members who would have been entitled to early retirement benefits under the old policy, had it remained in force (the court held that this would apply to all members who left service between 6 April 2010 and 31 March 2014). However, IBM is free to adopt a new policy after 31 March 2014, subject to adequate notice being given. For those members who retired during the above four year period, the trustee should now provide them with the benefits (including retrospective adjustments) which they would have been entitled to under the old early retirement policy on the basis that IBM's consent was either not required or that it would have been given. Consultation - Warren J was very critical of IBM's consultation process, holding that IBM had already decided to make the changes, had provided misleading information, and that the consultation was a mere rubber stamping exercise. IBM had therefore failed to undergo a proper consultation exercise with the members. This was held once again to be a breach of IBM's duty of trust and confidence, giving rise to remedies for breach of contract, injunctive relief and damages. We understand IBM has indicated it will seek permission to appeal this decision so the final outcome remains uncertain. Although this case was dependent on its own facts, given the serious implications to IBM of the remedies, and the comments made by Warren J in his 2014 judgment, it is clear that there are some important lessons for employers wishing to make changes to their pension schemes: Beware of statements made in previous member communications which might give rise to 'reasonable expectations' about the future of the scheme. If such statements have been made, consider carefully the timing of any subsequent changes. Consult properly, with accurate and complete communications, keeping an open mind and considering all representations made. Take care when communicating internally to avoid statements which might be interpreted to suggest that a decision has already been made before the end of the consultation period. Ensure that you have a robust business case for the proposed changes. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{1A614A19-C658-4D9E-9CF4-64C82DA728D7}https://www.shoosmiths.co.uk/client-resources/legal-updates/turning-a-blind-eye-9312.aspxTurning a blind eye... The case of Webber v Department for Education has finally been decided definitively. This case was a dispute between Mr Webber (who was a teacher) and the Teachers' Pension Scheme (TPS) and went before the Pensions Ombudsman, then the High Court, was reverted back to the Pensions Ombudsman for a second determination and ultimately appealed on a point of law before the High Court. The High Court gave its final judgment on 19 December 2014. The TPS is a statutory occupational scheme established under the Superannuation Act 1972. The rules of this scheme are set out in secondary legislation (which has been replaced over time) and the current regulations are set out in the Teachers' Pensions Regulations 2010 (TPR). Each set of these regulations held a provision entitled 'The Abatement of Retirement Pensions during further employment'. The basis of that provision was that an individual who had retired from teaching and was receiving a pension from the TPS could, in certain circumstances, expect that pension to be abated if they returned to employment as a teacher. The TPS is administered by Teachers' Pensions (TP). Mr Webber retired as a teacher at the age of 50 but then returned to work a few years later. On his return to work in 2001, Mr Webber telephoned TP and had a conversation about how much he could earn and the level of his 'salary of reference' for the purpose of establishing his maximum earnings before any need for abatement to his pension would arise. He was initially told could earn up to £24,000 per annum without triggering a pension abatement. TP also wrote to Mr Webber directly and he was made aware that if he returned to employment he should inform the Pensioner Services Section at the TP and that his pension could reduce if: 'you work full time and your salary rate and annual pension exceeded the index linked salary of reference' and that his salary of reference would be 'the highest salary you have received during your last three years of teaching or the highest annual rate you received during the three years before you are entitled to your pension' TP believed his earnings to be £14,491 for the period from 6 April 2001 to 5 April 2002 (in reality this was his salary for only a 7 months period) and his earning limit (salary of reference) for the relevant tax year was £20,837.10. Over the intervening years Mr Webber continued working and engaged in a number of expenditures including getting married, having a family, and travelling to and from the Ukraine where his wife was from. Eventually he was contacted by TP in 2009 who confirmed that they had calculated that he had exceeded his 'salary of reference' in each tax year from 2002/2003 to 2008/2009 and that Mr Webber had therefore been overpaid from his pension to the tune of £37,572.30 which, following a tax adjustment, left overpayments of £36,282.53. The decision The High Court found that the facts were such that it was surprising that given the information that was available to Mr Webber he did not make any further enquiries as to whether or not he was being overpaid. Although Mr Webber may not have known he was definitely being overpaid the High Court found that he must have been aware that there was a possibility that overpayment could happen and that he had 'turned a blind eye' in the hope that, if there was an overpayment, it would go unnoticed. This was not negligence or simply mistake. Mr Webber argued that the communications he had received from TP were unclear and he had misread one letter in particular to construe a different meaning. However, the High Court found that any reading of the letter concerned would, at worse, leave the recipient in some doubt as to whether it was necessary to get in contact with TP and (in view of that doubt) it was not clear why Mr Webber did not act. It would have been a simple thing to make contact to find out definitively what action he needed to take. The High Court also found that it must have been the case that the quoted salary of £14,491 in the letter to Mr Webber from TP referred only to 7 months of pay, roughly equivalent to the £24,000 per year. Given Mr Webber's earning limit, 'salary of reference' was stated to be circa £21,000 in writing in October 2001, it did not seem to make any sense to rely on a figure of £25,000 given in a tentative phone call made in April 2001. Also, given that figure and Mr Webber's knowledge that his annual salary was in fact £24,000, it was not clear (and Mr Webber could not clarify) why he didn't appreciate there was a risk he was earning over the allocated limit. At the very least he should have appreciated that there was a risk of that happening. The High Court therefore upheld the Pensions Ombudsman's decision on this point and reasserted the importance of the 'state of mind' of a defendant seeking to rely on a change of position defence. Turning a blind eye was not a reference to negligence so no sharp practice was needed. If an individual has grounds for believing that a payment may have been made by mistake (or there is a possibility it has) but cannot be sure, then to ignore it and not make any enquiry is effectively to take the view that they will assume the risk that if there was any payment in error, it would go unnoticed. The High Court's decision follows the comments of Lord Mersey in Kerrison v Glyn, Mills Currie and Co. (1912) which refer to good faith dictating that an enquiry be made of a payer in such circumstances. Clearly the nature and extent of the enquiry will depend on the circumstances in any case. Lord Mersey stated 'I do not think that a person who has, or thinks he has, good reason to believe that the payment was made by mistake will often be found to have acted in good faith if he pays the money away without first making enquiries of the person from whom he received it'. This line is followed in Lipkin Gorman v Karpnale Ltd (1991) where Lord Goff confirmed it was 'bad faith' to pay away money in knowledge of facts giving rise to the payer's potential right to restitution. This case confirms the need for those seeking to rely on a change of position defence to be able to show good faith in the manner set out. Members should note the need not to ignore possible errors hoping they will all go away, especially where simply enquiries can be made to clarify. It appears that where circumstances, information or just common sense point to the possibility of error members who do not enquire, where it is possible to do are likely to find themselves without the defence of change of position if restitution is sought by the payer in the future. Turning a blind eye is not a sensible option. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 26 Feb 2015 00:00:00 Z<![CDATA[Heather Chandler ]]><![CDATA[ The case of Webber v Department for Education has finally been decided definitively. This case was a dispute between Mr Webber (who was a teacher) and the Teachers' Pension Scheme (TPS) and went before the Pensions Ombudsman, then the High Court, was reverted back to the Pensions Ombudsman for a second determination and ultimately appealed on a point of law before the High Court. The High Court gave its final judgment on 19 December 2014. The TPS is a statutory occupational scheme established under the Superannuation Act 1972. The rules of this scheme are set out in secondary legislation (which has been replaced over time) and the current regulations are set out in the Teachers' Pensions Regulations 2010 (TPR). Each set of these regulations held a provision entitled 'The Abatement of Retirement Pensions during further employment'. The basis of that provision was that an individual who had retired from teaching and was receiving a pension from the TPS could, in certain circumstances, expect that pension to be abated if they returned to employment as a teacher. The TPS is administered by Teachers' Pensions (TP). Mr Webber retired as a teacher at the age of 50 but then returned to work a few years later. On his return to work in 2001, Mr Webber telephoned TP and had a conversation about how much he could earn and the level of his 'salary of reference' for the purpose of establishing his maximum earnings before any need for abatement to his pension would arise. He was initially told could earn up to £24,000 per annum without triggering a pension abatement. TP also wrote to Mr Webber directly and he was made aware that if he returned to employment he should inform the Pensioner Services Section at the TP and that his pension could reduce if: 'you work full time and your salary rate and annual pension exceeded the index linked salary of reference' and that his salary of reference would be 'the highest salary you have received during your last three years of teaching or the highest annual rate you received during the three years before you are entitled to your pension' TP believed his earnings to be £14,491 for the period from 6 April 2001 to 5 April 2002 (in reality this was his salary for only a 7 months period) and his earning limit (salary of reference) for the relevant tax year was £20,837.10. Over the intervening years Mr Webber continued working and engaged in a number of expenditures including getting married, having a family, and travelling to and from the Ukraine where his wife was from. Eventually he was contacted by TP in 2009 who confirmed that they had calculated that he had exceeded his 'salary of reference' in each tax year from 2002/2003 to 2008/2009 and that Mr Webber had therefore been overpaid from his pension to the tune of £37,572.30 which, following a tax adjustment, left overpayments of £36,282.53. The decision The High Court found that the facts were such that it was surprising that given the information that was available to Mr Webber he did not make any further enquiries as to whether or not he was being overpaid. Although Mr Webber may not have known he was definitely being overpaid the High Court found that he must have been aware that there was a possibility that overpayment could happen and that he had 'turned a blind eye' in the hope that, if there was an overpayment, it would go unnoticed. This was not negligence or simply mistake. Mr Webber argued that the communications he had received from TP were unclear and he had misread one letter in particular to construe a different meaning. However, the High Court found that any reading of the letter concerned would, at worse, leave the recipient in some doubt as to whether it was necessary to get in contact with TP and (in view of that doubt) it was not clear why Mr Webber did not act. It would have been a simple thing to make contact to find out definitively what action he needed to take. The High Court also found that it must have been the case that the quoted salary of £14,491 in the letter to Mr Webber from TP referred only to 7 months of pay, roughly equivalent to the £24,000 per year. Given Mr Webber's earning limit, 'salary of reference' was stated to be circa £21,000 in writing in October 2001, it did not seem to make any sense to rely on a figure of £25,000 given in a tentative phone call made in April 2001. Also, given that figure and Mr Webber's knowledge that his annual salary was in fact £24,000, it was not clear (and Mr Webber could not clarify) why he didn't appreciate there was a risk he was earning over the allocated limit. At the very least he should have appreciated that there was a risk of that happening. The High Court therefore upheld the Pensions Ombudsman's decision on this point and reasserted the importance of the 'state of mind' of a defendant seeking to rely on a change of position defence. Turning a blind eye was not a reference to negligence so no sharp practice was needed. If an individual has grounds for believing that a payment may have been made by mistake (or there is a possibility it has) but cannot be sure, then to ignore it and not make any enquiry is effectively to take the view that they will assume the risk that if there was any payment in error, it would go unnoticed. The High Court's decision follows the comments of Lord Mersey in Kerrison v Glyn, Mills Currie and Co. (1912) which refer to good faith dictating that an enquiry be made of a payer in such circumstances. Clearly the nature and extent of the enquiry will depend on the circumstances in any case. Lord Mersey stated 'I do not think that a person who has, or thinks he has, good reason to believe that the payment was made by mistake will often be found to have acted in good faith if he pays the money away without first making enquiries of the person from whom he received it'. This line is followed in Lipkin Gorman v Karpnale Ltd (1991) where Lord Goff confirmed it was 'bad faith' to pay away money in knowledge of facts giving rise to the payer's potential right to restitution. This case confirms the need for those seeking to rely on a change of position defence to be able to show good faith in the manner set out. Members should note the need not to ignore possible errors hoping they will all go away, especially where simply enquiries can be made to clarify. It appears that where circumstances, information or just common sense point to the possibility of error members who do not enquire, where it is possible to do are likely to find themselves without the defence of change of position if restitution is sought by the payer in the future. Turning a blind eye is not a sensible option. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{BB725784-C8F7-4717-8862-6D0C245AA54A}https://www.shoosmiths.co.uk/client-resources/legal-updates/pension-protection-fund-asset-funding-arrangements-8953.aspxPension Schemes: The Pension Protection Fund and Asset Backed Funding arrangements The Pension Protection Fund has published its appendix and guidance on valuing and certifying ABCs for levy purposes. Asset Backed Contribution arrangements (ABCs) are becoming a more common way of funding pension schemes and managing deficits. Under an ABC, scheme trustees and another employer group entity become partners in a Scottish Limited partnership. Payments are made from the partnership representing distributions of profit (or return of capital). These payments are generated by an income producing asset which is owned either by the limited partnership, a second limited partnership or an entity within the employer's group which has issued a loan note to the limited partnership. The PPF starting point is to exclude the value attributed to an ABC in the scheme asset data. It will then add back in the ABC value but calculated on an insolvency, rather than a going concern, basis. Where the ABC arrangement is recognised by the PPF, the value certified will be used to reduce the level of underfunding applied in the calculation of the risk based levy. When the trustee does not want to receive credit for the ABC in the risk based levy calculation but does want to ensure the amount deducted from assets in the valuation is accurate as well as obtaining recognition ABC payments actually made, the trustees will need to submit an ABC certificate which just covers the relevant information. Initially the PPF had said that only the ABC arrangements where the underlying asset was real estate would be recognised. The PPF has reconsidered this and will recognise other ABC assets. However, the PPF has said it will focus on ensuring that the valuation of the ABC arrangement is on an appropriate basis. Additionally, valuers will be required to recognise a duty of care to the PPF in their reports. Legal advice on the enforceability of the ABC will also be needed and this legal advice will also need to accept that the PPF may rely on the advice given. In certifying the ABC value, trustees must use the following procedure: The ABC value must be contained in a valuation prepared by a professional valuer on behalf of the scheme trustee, the trustee LLP or the second LLP. The valuer must be an appropriate professional who meets the criteria set out in guidance issued by the PPF and who has appropriate indemnity cover in place. The valuation must be in writing and state the assumptions on which it is based. The valuer must have been supplied with appropriate legal advice which provides a summary of the legal structure and enforceability of the ABC and the trustees' rights under it. The legal advice must meet the requirements set out in guidance issued by the PPF. The ABC value stated in the certificate must be the lower of the Fair Value and the Stressed Insolvency Value. Fair Value is the value attributed in the latest scheme accounts. The Stressed Insolvency Value is the amount which the scheme trustee could reasonably rely on receiving pursuant to rights under the ABC arrangement in the event that all Employers and certified guarantors suffered an insolvency event. Where the ABC consists or includes real estate, or where the limited partner or the entity which has issued a loan note to the trustee limited partner a certificate of title in respect of that ABC asset is also required. This must be dated no earlier than seven days before the date on which the ABC arrangement came into effect. This is the first year in which this valuation process has been adopted by the PPF so it will be interesting to see what changes are made to the process in subsequent years. The PPF guidance can be found here. The deadline for submitting the ABC Certificate and any supporting documents is 31 March 2015. For more information please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 12 Jan 2015 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ The Pension Protection Fund has published its appendix and guidance on valuing and certifying ABCs for levy purposes. Asset Backed Contribution arrangements (ABCs) are becoming a more common way of funding pension schemes and managing deficits. Under an ABC, scheme trustees and another employer group entity become partners in a Scottish Limited partnership. Payments are made from the partnership representing distributions of profit (or return of capital). These payments are generated by an income producing asset which is owned either by the limited partnership, a second limited partnership or an entity within the employer's group which has issued a loan note to the limited partnership. The PPF starting point is to exclude the value attributed to an ABC in the scheme asset data. It will then add back in the ABC value but calculated on an insolvency, rather than a going concern, basis. Where the ABC arrangement is recognised by the PPF, the value certified will be used to reduce the level of underfunding applied in the calculation of the risk based levy. When the trustee does not want to receive credit for the ABC in the risk based levy calculation but does want to ensure the amount deducted from assets in the valuation is accurate as well as obtaining recognition ABC payments actually made, the trustees will need to submit an ABC certificate which just covers the relevant information. Initially the PPF had said that only the ABC arrangements where the underlying asset was real estate would be recognised. The PPF has reconsidered this and will recognise other ABC assets. However, the PPF has said it will focus on ensuring that the valuation of the ABC arrangement is on an appropriate basis. Additionally, valuers will be required to recognise a duty of care to the PPF in their reports. Legal advice on the enforceability of the ABC will also be needed and this legal advice will also need to accept that the PPF may rely on the advice given. In certifying the ABC value, trustees must use the following procedure: The ABC value must be contained in a valuation prepared by a professional valuer on behalf of the scheme trustee, the trustee LLP or the second LLP. The valuer must be an appropriate professional who meets the criteria set out in guidance issued by the PPF and who has appropriate indemnity cover in place. The valuation must be in writing and state the assumptions on which it is based. The valuer must have been supplied with appropriate legal advice which provides a summary of the legal structure and enforceability of the ABC and the trustees' rights under it. The legal advice must meet the requirements set out in guidance issued by the PPF. The ABC value stated in the certificate must be the lower of the Fair Value and the Stressed Insolvency Value. Fair Value is the value attributed in the latest scheme accounts. The Stressed Insolvency Value is the amount which the scheme trustee could reasonably rely on receiving pursuant to rights under the ABC arrangement in the event that all Employers and certified guarantors suffered an insolvency event. Where the ABC consists or includes real estate, or where the limited partner or the entity which has issued a loan note to the trustee limited partner a certificate of title in respect of that ABC asset is also required. This must be dated no earlier than seven days before the date on which the ABC arrangement came into effect. This is the first year in which this valuation process has been adopted by the PPF so it will be interesting to see what changes are made to the process in subsequent years. The PPF guidance can be found here. The deadline for submitting the ABC Certificate and any supporting documents is 31 March 2015. For more information please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{C2DFAAF2-B2CC-41EE-8466-761AF8A59DD2}https://www.shoosmiths.co.uk/client-resources/legal-updates/pension-protection-fund-contingent-assets-8956.aspxPension Schemes: Pension Protection Fund and Contingent Assets 2015/16 This update looks at employer insolvency risk, last man standing schemes and contingent assets, following the publication of the Pension Protection Fund's Levy Estimate for the 2015/16 levy year. The PPF estimate for 2015/16 is £635 million. This represents a reduction from 2014/15 of around 10%. Levy estimates for the following two levy years anticipate that there may be further reductions. 2015/16 will be the first levy year where employers will be assessed by reference to the PPF specific measure of insolvency risk, as designed by Experian. A separate update on the PPF process for certifying asset backed contributions is also available. Employer insolvency risk A PPF-specific measure of insolvency risk has been adopted. This is designed to reflect the differences between average UK businesses and a typical pension scheme sponsor. Employers within the PPF environment will then be assessed by reference to the score card which applies to their category of employer. There are 9 different categories ranging from large/complex, group companies - with different score cards depending on the group size, independent (ie not part of a group), not for profit, non-filing and any which do not fall within one of the other eight categories. As with the existing regime, employers will then be put into a levy band depending on their specific insolvency risk. This will govern the levy payable. For guarantors under a type A contingent asset, the PPF will apply an adjustment to a guarantor's levy band to reflect the impact of the amount guaranteed on the guarantor's own gearing. Last man standing schemes The way in which the levy is calculated for last man standing schemes will also change. Currently there is a fixed reduction of 10% in the risk-based levy for a last man standing scheme. This reflects that the risk of entry into the PPF is regarded as being lower for a last man standing scheme. A last man standing scheme is a scheme where there is no partial termination of the scheme when an employer ceases to participate, whether due to insolvency or otherwise. In such a scheme, when the last participating employer experiences an insolvency event is when that scheme would enter into a PPF assessment period. The PPF will, after 31 March 2015, be writing to all schemes certified on their scheme return as last man standing schemes. Schemes will be required to confirm that they have received legal advice confirming that the scheme rules do not contain any requirement or discretion for the trustees to segregate assets when an employer ceases to participate. For schemes certified as last man standing, the levy reduction will no longer be a fixed 10% reduction. The reduction applied will reflect the concentration of membership between different participating employers. Contingent assets Contingent assets, both new and existing, will still need to be certified before 5pm on 31 March 2015 for recognition in the 2015 levy year. Additionally, the PPF has updated its standard form documents. For all Contingent Assets entered into after December 2014, the updated standard forms should be used. These are available on the PPF website. One key change for type A contingent assets is that a fixed amount will need to be certified. From 2015/16, trustees will be required to provide a statement as to the amount of the 'realisable recovery' amount and confirm that they are reasonably satisfied, having made all reasonable enquiries into the financial position of each certified guarantor, that each certified guarantor could meet the realisable recovery in full, having taken account of the likely impact of the immediate insolvency of all the employers (other than the certified guarantor where that certified guarantor is also an employer). The realisable recovery must be a fixed cash sum and should be the lower of: Any cap defined by reference to a fixed amount in the guarantee, and An amount no greater than that which the trustees are reasonably satisfied that each certified guarantor could meet if called upon to do so. The amount certified as the realisable amount can be lower than the amount covered by the guarantee. Therefore trustees are able to change the realisable amount each year without making any formal amendments to the terms of the guarantee. The adjustment to a guarantor's levy band by the PPF means that where trustees certify the largest fixed amounts they consider possible for a guarantee, this may impact on the guarantor's levy band. When certifying that the guarantor could meet the realisable recovery amount, trustees should not place value on a guarantor's investments in the scheme employers unless they are confident that the value would survive employer insolvency. In considering the effect on the guarantor of employer insolvency, the PPF suggests that the impact could include the following effects (although it does say that this is not an exhaustive list): Reduction in value of employer shares or investments held by the guarantor Loss of inter-company debts owed by the employer Impact of any cross-guarantee Loss of an important supply to the group The PPF also says that trustees should think carefully about the type, location and ability to realise, the guarantor's assets. Where the guarantor's assets consist of intangible assets such as brand value or consist of inter-company accounts and investments, the trustees should consider whether the assets are likely to deliver any real value to the guarantor if the employer becomes insolvent. The PPF suggests that trustees may wish to obtain a letter of comfort from the guarantor about its financial position. The PPF will be looking at some schemes to examine the process followed in making the certification. While the PPF always recognises that trustees are not required to obtain a full covenant assessment of the guarantor, a detailed review in some form is likely to be needed. The deadline for submitting new contingent assets and for certifying existing contingent assets is 31 March 2015. For more information please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 12 Jan 2015 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ This update looks at employer insolvency risk, last man standing schemes and contingent assets, following the publication of the Pension Protection Fund's Levy Estimate for the 2015/16 levy year. The PPF estimate for 2015/16 is £635 million. This represents a reduction from 2014/15 of around 10%. Levy estimates for the following two levy years anticipate that there may be further reductions. 2015/16 will be the first levy year where employers will be assessed by reference to the PPF specific measure of insolvency risk, as designed by Experian. A separate update on the PPF process for certifying asset backed contributions is also available. Employer insolvency risk A PPF-specific measure of insolvency risk has been adopted. This is designed to reflect the differences between average UK businesses and a typical pension scheme sponsor. Employers within the PPF environment will then be assessed by reference to the score card which applies to their category of employer. There are 9 different categories ranging from large/complex, group companies - with different score cards depending on the group size, independent (ie not part of a group), not for profit, non-filing and any which do not fall within one of the other eight categories. As with the existing regime, employers will then be put into a levy band depending on their specific insolvency risk. This will govern the levy payable. For guarantors under a type A contingent asset, the PPF will apply an adjustment to a guarantor's levy band to reflect the impact of the amount guaranteed on the guarantor's own gearing. Last man standing schemes The way in which the levy is calculated for last man standing schemes will also change. Currently there is a fixed reduction of 10% in the risk-based levy for a last man standing scheme. This reflects that the risk of entry into the PPF is regarded as being lower for a last man standing scheme. A last man standing scheme is a scheme where there is no partial termination of the scheme when an employer ceases to participate, whether due to insolvency or otherwise. In such a scheme, when the last participating employer experiences an insolvency event is when that scheme would enter into a PPF assessment period. The PPF will, after 31 March 2015, be writing to all schemes certified on their scheme return as last man standing schemes. Schemes will be required to confirm that they have received legal advice confirming that the scheme rules do not contain any requirement or discretion for the trustees to segregate assets when an employer ceases to participate. For schemes certified as last man standing, the levy reduction will no longer be a fixed 10% reduction. The reduction applied will reflect the concentration of membership between different participating employers. Contingent assets Contingent assets, both new and existing, will still need to be certified before 5pm on 31 March 2015 for recognition in the 2015 levy year. Additionally, the PPF has updated its standard form documents. For all Contingent Assets entered into after December 2014, the updated standard forms should be used. These are available on the PPF website. One key change for type A contingent assets is that a fixed amount will need to be certified. From 2015/16, trustees will be required to provide a statement as to the amount of the 'realisable recovery' amount and confirm that they are reasonably satisfied, having made all reasonable enquiries into the financial position of each certified guarantor, that each certified guarantor could meet the realisable recovery in full, having taken account of the likely impact of the immediate insolvency of all the employers (other than the certified guarantor where that certified guarantor is also an employer). The realisable recovery must be a fixed cash sum and should be the lower of: Any cap defined by reference to a fixed amount in the guarantee, and An amount no greater than that which the trustees are reasonably satisfied that each certified guarantor could meet if called upon to do so. The amount certified as the realisable amount can be lower than the amount covered by the guarantee. Therefore trustees are able to change the realisable amount each year without making any formal amendments to the terms of the guarantee. The adjustment to a guarantor's levy band by the PPF means that where trustees certify the largest fixed amounts they consider possible for a guarantee, this may impact on the guarantor's levy band. When certifying that the guarantor could meet the realisable recovery amount, trustees should not place value on a guarantor's investments in the scheme employers unless they are confident that the value would survive employer insolvency. In considering the effect on the guarantor of employer insolvency, the PPF suggests that the impact could include the following effects (although it does say that this is not an exhaustive list): Reduction in value of employer shares or investments held by the guarantor Loss of inter-company debts owed by the employer Impact of any cross-guarantee Loss of an important supply to the group The PPF also says that trustees should think carefully about the type, location and ability to realise, the guarantor's assets. Where the guarantor's assets consist of intangible assets such as brand value or consist of inter-company accounts and investments, the trustees should consider whether the assets are likely to deliver any real value to the guarantor if the employer becomes insolvent. The PPF suggests that trustees may wish to obtain a letter of comfort from the guarantor about its financial position. The PPF will be looking at some schemes to examine the process followed in making the certification. While the PPF always recognises that trustees are not required to obtain a full covenant assessment of the guarantor, a detailed review in some form is likely to be needed. The deadline for submitting new contingent assets and for certifying existing contingent assets is 31 March 2015. For more information please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{AF789A7E-1250-472C-82DF-13DBC4EDA6AB}https://www.shoosmiths.co.uk/client-resources/legal-updates/8953.aspxPension Schemes: The Pension Protection Fund and Asset Backed Funding arrangements The Pension Protection Fund has published its appendix and guidance on valuing and certifying ABCs for levy purposes. Asset Backed Contribution arrangements (ABCs) are becoming a more common way of funding pension schemes and managing deficits. Under an ABC, scheme trustees and another employer group entity become partners in a Scottish Limited partnership. Payments are made from the partnership representing distributions of profit (or return of capital). These payments are generated by an income producing asset which is owned either by the limited partnership, a second limited partnership or an entity within the employer's group which has issued a loan note to the limited partnership. The PPF starting point is to exclude the value attributed to an ABC in the scheme asset data. It will then add back in the ABC value but calculated on an insolvency, rather than a going concern, basis. Where the ABC arrangement is recognised by the PPF, the value certified will be used to reduce the level of underfunding applied in the calculation of the risk based levy. When the trustee does not want to receive credit for the ABC in the risk based levy calculation but does want to ensure the amount deducted from assets in the valuation is accurate as well as obtaining recognition ABC payments actually made, the trustees will need to submit an ABC certificate which just covers the relevant information. Initially the PPF had said that only the ABC arrangements where the underlying asset was real estate would be recognised. The PPF has reconsidered this and will recognise other ABC assets. However, the PPF has said it will focus on ensuring that the valuation of the ABC arrangement is on an appropriate basis. Additionally, valuers will be required to recognise a duty of care to the PPF in their reports. Legal advice on the enforceability of the ABC will also be needed and this legal advice will also need to accept that the PPF may rely on the advice given. In certifying the ABC value, trustees must use the following procedure: The ABC value must be contained in a valuation prepared by a professional valuer on behalf of the scheme trustee, the trustee LLP or the second LLP. The valuer must be an appropriate professional who meets the criteria set out in guidance issued by the PPF and who has appropriate indemnity cover in place. The valuation must be in writing and state the assumptions on which it is based. The valuer must have been supplied with appropriate legal advice which provides a summary of the legal structure and enforceability of the ABC and the trustees' rights under it. The legal advice must meet the requirements set out in guidance issued by the PPF. The ABC value stated in the certificate must be the lower of the Fair Value and the Stressed Insolvency Value. Fair Value is the value attributed in the latest scheme accounts. The Stressed Insolvency Value is the amount which the scheme trustee could reasonably rely on receiving pursuant to rights under the ABC arrangement in the event that all Employers and certified guarantors suffered an insolvency event. Where the ABC consists or includes real estate, or where the limited partner or the entity which has issued a loan note to the trustee limited partner a certificate of title in respect of that ABC asset is also required. This must be dated no earlier than seven days before the date on which the ABC arrangement came into effect. This is the first year in which this valuation process has been adopted by the PPF so it will be interesting to see what changes are made to the process in subsequent years. The PPF guidance can be found here. The deadline for submitting the ABC Certificate and any supporting documents is 31 March 2015. For more information please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 12 Jan 2015 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ The Pension Protection Fund has published its appendix and guidance on valuing and certifying ABCs for levy purposes. Asset Backed Contribution arrangements (ABCs) are becoming a more common way of funding pension schemes and managing deficits. Under an ABC, scheme trustees and another employer group entity become partners in a Scottish Limited partnership. Payments are made from the partnership representing distributions of profit (or return of capital). These payments are generated by an income producing asset which is owned either by the limited partnership, a second limited partnership or an entity within the employer's group which has issued a loan note to the limited partnership. The PPF starting point is to exclude the value attributed to an ABC in the scheme asset data. It will then add back in the ABC value but calculated on an insolvency, rather than a going concern, basis. Where the ABC arrangement is recognised by the PPF, the value certified will be used to reduce the level of underfunding applied in the calculation of the risk based levy. When the trustee does not want to receive credit for the ABC in the risk based levy calculation but does want to ensure the amount deducted from assets in the valuation is accurate as well as obtaining recognition ABC payments actually made, the trustees will need to submit an ABC certificate which just covers the relevant information. Initially the PPF had said that only the ABC arrangements where the underlying asset was real estate would be recognised. The PPF has reconsidered this and will recognise other ABC assets. However, the PPF has said it will focus on ensuring that the valuation of the ABC arrangement is on an appropriate basis. Additionally, valuers will be required to recognise a duty of care to the PPF in their reports. Legal advice on the enforceability of the ABC will also be needed and this legal advice will also need to accept that the PPF may rely on the advice given. In certifying the ABC value, trustees must use the following procedure: The ABC value must be contained in a valuation prepared by a professional valuer on behalf of the scheme trustee, the trustee LLP or the second LLP. The valuer must be an appropriate professional who meets the criteria set out in guidance issued by the PPF and who has appropriate indemnity cover in place. The valuation must be in writing and state the assumptions on which it is based. The valuer must have been supplied with appropriate legal advice which provides a summary of the legal structure and enforceability of the ABC and the trustees' rights under it. The legal advice must meet the requirements set out in guidance issued by the PPF. The ABC value stated in the certificate must be the lower of the Fair Value and the Stressed Insolvency Value. Fair Value is the value attributed in the latest scheme accounts. The Stressed Insolvency Value is the amount which the scheme trustee could reasonably rely on receiving pursuant to rights under the ABC arrangement in the event that all Employers and certified guarantors suffered an insolvency event. Where the ABC consists or includes real estate, or where the limited partner or the entity which has issued a loan note to the trustee limited partner a certificate of title in respect of that ABC asset is also required. This must be dated no earlier than seven days before the date on which the ABC arrangement came into effect. This is the first year in which this valuation process has been adopted by the PPF so it will be interesting to see what changes are made to the process in subsequent years. The PPF guidance can be found here. The deadline for submitting the ABC Certificate and any supporting documents is 31 March 2015. For more information please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{E3CDC6C6-D740-4E43-A8DC-F5C4D336FF44}https://www.shoosmiths.co.uk/client-resources/legal-updates/small-business-enterprise-employment-bill-8805.aspxSmall Business, Enterprise and Employment Bill: Corporate Directors and Pensions Trustees The Small Business, Enterprise and Employment Bill is currently going through parliament. The Bill amends the Companies Act 2006 so that it will no longer be possible to appoint a corporate director to another company. In the bill, there will be a power contained in the legislation to make regulations setting out exemptions to this providing for circumstances where corporate directors will be permitted. A specific exemption in relation to pension schemes is contemplated. Earlier this year, we published a legal update regarding the government's response to its discussion paper on enhanced transparency of UK company ownership. One of the key proposals by the government was a ban on the use of corporate directors. The Department for Business Innovation and Skills has published a paper discussing the scope of exceptions to the prohibition of corporate directors. The paper can be found here. The paper states that the government is "minded" to allow corporate directors of a corporate pension scheme trustee to continue. They are seeking responses to the following questions: Can you provide any further information or evidence BIS should consider in relation to the abuses or value of corporate directorships in the pensions industry Is there anything that should be done to improve the transparency of corporate directorships and corporate trustees Can you provide any evidence of the costs and benefits of your preferred outcome For many pension schemes it is common practice to use a corporate trustee to run the pension scheme. There are a number of reasons for using a corporate trustee including administrative simplicity and, perhaps more importantly, in the reduction of exposure to liability for individuals. Additionally, it is becoming increasingly common for independent trustees to be appointed. Where the existing trustee is a corporate, a corporate independent trustee will be appointed as a director of that trustee company. Clearly a prohibition on appointment of corporate directors to trustee companies could create problems for those corporate trustees who have a corporate independent trustee appointed as a director. A further reason why a scheme may use a corporate trustee structure is where an asset backed funding arrangement is put in place through the establishment of a Scottish Limited Partnership. Provided that the corporate trustee is in the same corporate group as the employer, the arrangement will benefit from an exemption in the Financial Services and Markets Act 2000 (FSMA), meaning that the operator of the arrangement, as a Common Investment Fund, will not require authorisation under the Act. Unless the exemption is introduced, a prohibition on the appointment of a corporate as a director could create problems for pension schemes. Most schemes are set up on the basis that there are either individual trustees or a single corporate. Scheme sponsors may be reluctant to appoint an independent trustee unless they can be appointed as a director of an existing trustee company. A corporate independent trustee would not be part of the same group for the purposes of FSMA meaning that it would not longer be possible to rely on this exemption. The concerns around the use of a corporate director, namely the potential to conceal corporate control, are not present in a pension schemes context. There are general statutory obligations and regulatory obligations imposed on trustees in the running of a pension scheme which apply to a corporate trustee. Given that the main reason for appointing a corporate trustee director is to facilitate appointment of an independent trustee, prohibition of this could lead to reduced good governance for some schemes. Comments on the discussion paper are invited and the consultation will close on 8 January 2015. We will be responding to the consultations so if you have any submissions you would like to make on our behalf please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 04 Dec 2014 00:00:00 Z<![CDATA[Suzanne Burrell ]]><![CDATA[ The Small Business, Enterprise and Employment Bill is currently going through parliament. The Bill amends the Companies Act 2006 so that it will no longer be possible to appoint a corporate director to another company. In the bill, there will be a power contained in the legislation to make regulations setting out exemptions to this providing for circumstances where corporate directors will be permitted. A specific exemption in relation to pension schemes is contemplated. Earlier this year, we published a legal update regarding the government's response to its discussion paper on enhanced transparency of UK company ownership. One of the key proposals by the government was a ban on the use of corporate directors. The Department for Business Innovation and Skills has published a paper discussing the scope of exceptions to the prohibition of corporate directors. The paper can be found here. The paper states that the government is "minded" to allow corporate directors of a corporate pension scheme trustee to continue. They are seeking responses to the following questions: Can you provide any further information or evidence BIS should consider in relation to the abuses or value of corporate directorships in the pensions industry Is there anything that should be done to improve the transparency of corporate directorships and corporate trustees Can you provide any evidence of the costs and benefits of your preferred outcome For many pension schemes it is common practice to use a corporate trustee to run the pension scheme. There are a number of reasons for using a corporate trustee including administrative simplicity and, perhaps more importantly, in the reduction of exposure to liability for individuals. Additionally, it is becoming increasingly common for independent trustees to be appointed. Where the existing trustee is a corporate, a corporate independent trustee will be appointed as a director of that trustee company. Clearly a prohibition on appointment of corporate directors to trustee companies could create problems for those corporate trustees who have a corporate independent trustee appointed as a director. A further reason why a scheme may use a corporate trustee structure is where an asset backed funding arrangement is put in place through the establishment of a Scottish Limited Partnership. Provided that the corporate trustee is in the same corporate group as the employer, the arrangement will benefit from an exemption in the Financial Services and Markets Act 2000 (FSMA), meaning that the operator of the arrangement, as a Common Investment Fund, will not require authorisation under the Act. Unless the exemption is introduced, a prohibition on the appointment of a corporate as a director could create problems for pension schemes. Most schemes are set up on the basis that there are either individual trustees or a single corporate. Scheme sponsors may be reluctant to appoint an independent trustee unless they can be appointed as a director of an existing trustee company. A corporate independent trustee would not be part of the same group for the purposes of FSMA meaning that it would not longer be possible to rely on this exemption. The concerns around the use of a corporate director, namely the potential to conceal corporate control, are not present in a pension schemes context. There are general statutory obligations and regulatory obligations imposed on trustees in the running of a pension scheme which apply to a corporate trustee. Given that the main reason for appointing a corporate trustee director is to facilitate appointment of an independent trustee, prohibition of this could lead to reduced good governance for some schemes. Comments on the discussion paper are invited and the consultation will close on 8 January 2015. We will be responding to the consultations so if you have any submissions you would like to make on our behalf please contact Suzanne Burrell or your usual pensions contact. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{0624C572-2A81-4A07-9DC9-4E37950F29B1}https://www.shoosmiths.co.uk/client-resources/legal-updates/arcadia-group-ltd-v-arcadia-group-pension-trust-8301.aspxArcadia Group Ltd v Arcadia Group Pension Trust Ltd: RPI/CPI and the power to select an alternative index The sponsoring employer and trustees of the Arcadia scheme, acting jointly, were able to switch from RPI to CPI for calculating increases to pensions in payment and revaluation of deferred benefits This update looks at the issues in the case, and the considerations for schemes that may now have more flexibility to switch in the light of this decision. Background In 2011 the government adopted the Consumer Prices Index (CPI) in place of the Retail Prices Index (RPI) as part of the formula for determining statutory rates of revaluation and indexation. Trustees and sponsoring employers of occupational pension schemes had to consider what the change meant for their scheme. The effect depended on how the wording of a scheme's rules interpreted the statutory provisions. Where rules referred directly to the relevant legislation the switch to CPI was automatic. Other rules had RPI 'hard-coded' in so that it remained the appropriate index. In other cases it was not clear how a definition should be interpreted or whether the wording allowed any discretion to select an alternative index. Danks v Qinetiq Holdings Ltd In Qinetiq, the definition of 'Index' referred expressly to RPI but continued 'or any other suitable cost of living index selected by the Trustees'. The trustees asked the court to confirm if the decision to switch would amount to a 'detrimental modification' under section 67 Pensions Act 1995 ("section 67"). The court held that it would not. A member's right (to indexation and revaluation) was not an entitlement or accrued right until the calculation had been done. At the point of calculation the trustees could choose to use either RPI or CPI, meaning that CPI could also be applied to past service benefits. Qinetiq paved the way for schemes to switch to CPI where the rules conferred an express power to choose an alternative index. The position was not so clear for schemes with RPI hard-coded in and no such power to choose. This was the situation in Arcadia. The Arcadia decision The definition of Retail Prices Index in the Arcadia scheme rules referred to RPI 'or any similar index satisfactory for the purposes of' HMRC/the Inland Revenue. The court was asked several questions on the interpretation of this wording: Was there a power under the definition to select an index other than RPI? Yes. The power of selection can be implied where the definition anticipated the use of another index but did not say how the change would be made. The power is not confined to circumstances in which RPI has been discontinued or replaced. Who can exercise the power of selection? The judge considered that the power was vested jointly in the trustees and the employer. Although not expressly set out, it would be odd for the power to vest solely in the employer, given that the power of amendment was exercisable by the employer with the consent of the trustee. Would CPI be a 'similar' index which is 'satisfactory' for the purposes of HRMC? Yes. As schemes no longer have to be approved by HMRC and CPI has been endorsed by the government, there was no basis for HMRC to consider CPI as anything other than satisfactory. Does a switch to CPI for use in relation to past service fall foul of section 67 Pensions Act 1995? No. The judge held that Qinetiq was correctly decided, and that switching to CPI for past service did not adversely affect members' accrued rights so did not breach section 67. Members were entitled to have their benefits determined by reference to the scheme's definition of RPI, which included a discretion to choose an alternative index. Comment The decision makes clear that the power to select an alternative index will turn on individual circumstances and the precise wording in a scheme's rules. Following Arcadia, schemes with similar definitions may now be able to look at making the switch from RPI to CPI. Key considerations will include establishing who can exercise the power to select an alternative index, and examining how closely wording follows the definition in Arcadia. Some pre A-day rules may refer to an alternative index that does not prejudice the approved status of the scheme. As there is no longer a requirement for schemes to be approved by HRMC, it could be that this wording would not be a barrier to switching, although it has not been considered by the courts. On the other hand, it seems unlikely that there would be any flexibility to switch index in a definition that refers to 'such similar index as may replace' RPI. Given the judge's comments that the power in Arcadia was unconstrained by a requirement for RPI to be discontinued or replaced, an express reference to the need for replacement is arguably going to act as a constraint on any power to switch. Next steps In a further development, the trustees of the BA pension scheme have just been granted costs protection to allow them to defend proceedings brought against them by BA. BA has accused the trustees of improperly using their powers to increase benefits, as a result of the government's decision to switch to CPI. This highlights the importance for trustees to consider how to exercise any discretion they may have, bearing in mind their duty to act in the best interests of members. For more information please contact the authors or your usual Shoosmiths pensions contact. Our pension litigation specialists are also available to assist trustees or employers who wish to seek guidance from the court on the implications for their scheme DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Tue, 09 Sep 2014 00:00:00 +0100<![CDATA[Jenny Farrell Heather Chandler ]]><![CDATA[ The sponsoring employer and trustees of the Arcadia scheme, acting jointly, were able to switch from RPI to CPI for calculating increases to pensions in payment and revaluation of deferred benefits This update looks at the issues in the case, and the considerations for schemes that may now have more flexibility to switch in the light of this decision. Background In 2011 the government adopted the Consumer Prices Index (CPI) in place of the Retail Prices Index (RPI) as part of the formula for determining statutory rates of revaluation and indexation. Trustees and sponsoring employers of occupational pension schemes had to consider what the change meant for their scheme. The effect depended on how the wording of a scheme's rules interpreted the statutory provisions. Where rules referred directly to the relevant legislation the switch to CPI was automatic. Other rules had RPI 'hard-coded' in so that it remained the appropriate index. In other cases it was not clear how a definition should be interpreted or whether the wording allowed any discretion to select an alternative index. Danks v Qinetiq Holdings Ltd In Qinetiq, the definition of 'Index' referred expressly to RPI but continued 'or any other suitable cost of living index selected by the Trustees'. The trustees asked the court to confirm if the decision to switch would amount to a 'detrimental modification' under section 67 Pensions Act 1995 ("section 67"). The court held that it would not. A member's right (to indexation and revaluation) was not an entitlement or accrued right until the calculation had been done. At the point of calculation the trustees could choose to use either RPI or CPI, meaning that CPI could also be applied to past service benefits. Qinetiq paved the way for schemes to switch to CPI where the rules conferred an express power to choose an alternative index. The position was not so clear for schemes with RPI hard-coded in and no such power to choose. This was the situation in Arcadia. The Arcadia decision The definition of Retail Prices Index in the Arcadia scheme rules referred to RPI 'or any similar index satisfactory for the purposes of' HMRC/the Inland Revenue. The court was asked several questions on the interpretation of this wording: Was there a power under the definition to select an index other than RPI? Yes. The power of selection can be implied where the definition anticipated the use of another index but did not say how the change would be made. The power is not confined to circumstances in which RPI has been discontinued or replaced. Who can exercise the power of selection? The judge considered that the power was vested jointly in the trustees and the employer. Although not expressly set out, it would be odd for the power to vest solely in the employer, given that the power of amendment was exercisable by the employer with the consent of the trustee. Would CPI be a 'similar' index which is 'satisfactory' for the purposes of HRMC? Yes. As schemes no longer have to be approved by HMRC and CPI has been endorsed by the government, there was no basis for HMRC to consider CPI as anything other than satisfactory. Does a switch to CPI for use in relation to past service fall foul of section 67 Pensions Act 1995? No. The judge held that Qinetiq was correctly decided, and that switching to CPI for past service did not adversely affect members' accrued rights so did not breach section 67. Members were entitled to have their benefits determined by reference to the scheme's definition of RPI, which included a discretion to choose an alternative index. Comment The decision makes clear that the power to select an alternative index will turn on individual circumstances and the precise wording in a scheme's rules. Following Arcadia, schemes with similar definitions may now be able to look at making the switch from RPI to CPI. Key considerations will include establishing who can exercise the power to select an alternative index, and examining how closely wording follows the definition in Arcadia. Some pre A-day rules may refer to an alternative index that does not prejudice the approved status of the scheme. As there is no longer a requirement for schemes to be approved by HRMC, it could be that this wording would not be a barrier to switching, although it has not been considered by the courts. On the other hand, it seems unlikely that there would be any flexibility to switch index in a definition that refers to 'such similar index as may replace' RPI. Given the judge's comments that the power in Arcadia was unconstrained by a requirement for RPI to be discontinued or replaced, an express reference to the need for replacement is arguably going to act as a constraint on any power to switch. Next steps In a further development, the trustees of the BA pension scheme have just been granted costs protection to allow them to defend proceedings brought against them by BA. BA has accused the trustees of improperly using their powers to increase benefits, as a result of the government's decision to switch to CPI. This highlights the importance for trustees to consider how to exercise any discretion they may have, bearing in mind their duty to act in the best interests of members. For more information please contact the authors or your usual Shoosmiths pensions contact. Our pension litigation specialists are also available to assist trustees or employers who wish to seek guidance from the court on the implications for their scheme DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{97B70EE8-C234-49C6-9A83-2430904C8E93}https://www.shoosmiths.co.uk/client-resources/legal-updates/what-an-independent-scotland-could-mean-for-your-business-8044.aspxWhat an independent Scotland could mean for your business The 24 March 2016 is the proposed date for independence from the parliamentary union of 1707 if Scotland votes 'Yes' in the referendum in two months' time. We look at what it could mean for UK businesses if Scotland decides to become an independent country. What will the future hold? The future of an independent Scotland would be determined by how Scotland votes in elections, following a positive referendum result and on the outcome of legal debates and negotiations in the transitionary period in various contexts, such as EU membership and currency. It is difficult to know what will happen and how it will affect UK businesses but the current Scottish government has declared its priorities for action should it be re-elected which give us some indication of what might come to pass. 1. Groats, Merks or Unicorns*: what will you pay your employees in? One of the key issues in the current debate is what the currency would be in an independent Scotland. The current Scottish government's position is that the pound is Scotland's currency just as much as it is the rest of the UK's (rUK) and proposes simply to retain the pound. Pro union spokespersons in all three major UK parties have said that would not be in the interests of rUK and they wouldn't recommend entering into a currency union. Other options include an independent currency pegged to the pound. One further complication is Scotland's future membership of the EU and the process whereby Scotland might transition from a region of a member state to a member state in its own right. The Scottish government has made clear its intention not to join the European single currency. However, member states who have come into the EU since the Euro was created have been required as part of their accession negotiations to accept a binding obligation to adopt the Euro once they meet the qualifying criteria. Would Scotland lose the UK's opt-out from joining the Euro or might it be able to negotiate a similar opt out arrangement? In a worst case scenario, businesses with employees in Scotland could face problems adapting payroll systems to accommodate a different currency and could end up with dual systems in place. *Scottish denominations pre 1707 2. How will your employees in Scotland pay tax? An independent Scotland would be able to make changes to the tax system and might well introduce different tax regimes and laws. There are already indications that minimum wage rates would rise alongside the cost of living and different rates of income tax, personal tax allowances, national insurance contributions and corporation tax are likely to apply, again requiring an overhaul of payroll systems. Furthermore, in order to avoid the potential of double taxation, a tax treaty would have to be agreed with the UK prior to any independence day. 3. What pension provisions would you need to put in place? Pension legislation is a matter currently reserved to Westminster. On independence, this would pass to the Scottish government. The current Scottish government proposes amending the existing law so that over time the two regimes may well diverge. Employers currently operating UK final salary schemes may find themselves operating cross-border schemes, namely schemes which are located in one member state (i.e rUK) but which have members working in another member state (assuming Scotland becomes one). There is an EU requirement for such schemes to be fully funded at all times and employers will be faced with having to meet funding gaps. Transitional arrangements such as grace periods are currently proposed. Alternatively employers might look at splitting their schemes instead although this would be no mean task. Auto-enrolment will continue with some small adjustments such as setting up a Scottish Employment Savings Trust. Different interest rates, currency (potentially) and tax regimes are also likely to complicate pension provision for cross-border employers. 4. What employment rights and obligations would apply to your Scottish employees? Employment, industrial relations and health and safety are currently reserved to Westminster. On independence, these would pass to the Scottish government. The new Scottish parliament would amend the legislation currently applying to Scottish employees so whilst these are currently similar in Scotland to the rest of the UK, post independence there is likely to be a rapid divergence. The current Scottish government if re-elected would increase the national minimum wage 'at the very least' in line with inflation, encourage greater trade union participation, consult on employee representation on boards, consult on a target for female representation on boards and legislate as appropriate and, in general, strengthen employment protection (examples include restoring the 90 day consultation period and abolition of the recently introduced employee shareholder provisions). Key issues for review are zero-hour contracts and access to employment tribunals. The current Scottish government also proposes establishing a written constitution setting out the rights of its citizens which is also likely to impact on Scottish employment rights. Businesses and trade unions would have a role in shaping the constitution. The employment legislation derived from the EU would, assuming Scotland becomes a member state, require to be implemented by a Scottish government just as in rUK although there may be a divergence in terms of opt-outs. There is nothing however to prevent variations in how the directives are implemented or the extent to which Scotland might go further than strictly required. There is also the matter of whether rUK will remain a member of the EU. 5. How would your staff cross the border? For companies operating across England and Scotland, maintaining fluid movement of goods and labour is likely to be a key issue. The Common Travel Area currently allows people to travel freely between the UK, Ireland, the Isle of Man and the Channel Islands. The UK has opted out of the Schengen Agreement which abolishes all internal borders within the EU and imposes a common border policy on EU members. The UK and Ireland are the only countries in the EU which are not signatories to the Schengen Agreement. Membership of both the Common Travel Area and the Schengen Agreement is incompatible. Therefore unless Scotland negotiates to opt-out of the Schengen Agreement, certain border controls may become necessary between Scotland and rUK. This could restrict the movement of goods and people between England and Scotland causing logistical problems for businesses. The current Scottish government's position is that an independent Scotland will become part of the Common Travel Area and therefore labour and goods will be able to move between Scotland and rUK without being subjected to passport control or border checks. However others have expressed concern that an independent Scotland would be unable to negotiate EU membership unless they apply the Schengen rules as this is required of every new entrant to the EU. In this case, certain border controls may become necessary, unless a novel solution can be found or rUK also submits to the Schengen Agreement. Conclusion The referendum is due to take place on 18 September. Are you ready for such a fundamental change? Mon, 21 Jul 2014 00:00:00 +0100<![CDATA[Karen Harvie ]]><![CDATA[ The 24 March 2016 is the proposed date for independence from the parliamentary union of 1707 if Scotland votes 'Yes' in the referendum in two months' time. We look at what it could mean for UK businesses if Scotland decides to become an independent country. What will the future hold? The future of an independent Scotland would be determined by how Scotland votes in elections, following a positive referendum result and on the outcome of legal debates and negotiations in the transitionary period in various contexts, such as EU membership and currency. It is difficult to know what will happen and how it will affect UK businesses but the current Scottish government has declared its priorities for action should it be re-elected which give us some indication of what might come to pass. 1. Groats, Merks or Unicorns*: what will you pay your employees in? One of the key issues in the current debate is what the currency would be in an independent Scotland. The current Scottish government's position is that the pound is Scotland's currency just as much as it is the rest of the UK's (rUK) and proposes simply to retain the pound. Pro union spokespersons in all three major UK parties have said that would not be in the interests of rUK and they wouldn't recommend entering into a currency union. Other options include an independent currency pegged to the pound. One further complication is Scotland's future membership of the EU and the process whereby Scotland might transition from a region of a member state to a member state in its own right. The Scottish government has made clear its intention not to join the European single currency. However, member states who have come into the EU since the Euro was created have been required as part of their accession negotiations to accept a binding obligation to adopt the Euro once they meet the qualifying criteria. Would Scotland lose the UK's opt-out from joining the Euro or might it be able to negotiate a similar opt out arrangement? In a worst case scenario, businesses with employees in Scotland could face problems adapting payroll systems to accommodate a different currency and could end up with dual systems in place. *Scottish denominations pre 1707 2. How will your employees in Scotland pay tax? An independent Scotland would be able to make changes to the tax system and might well introduce different tax regimes and laws. There are already indications that minimum wage rates would rise alongside the cost of living and different rates of income tax, personal tax allowances, national insurance contributions and corporation tax are likely to apply, again requiring an overhaul of payroll systems. Furthermore, in order to avoid the potential of double taxation, a tax treaty would have to be agreed with the UK prior to any independence day. 3. What pension provisions would you need to put in place? Pension legislation is a matter currently reserved to Westminster. On independence, this would pass to the Scottish government. The current Scottish government proposes amending the existing law so that over time the two regimes may well diverge. Employers currently operating UK final salary schemes may find themselves operating cross-border schemes, namely schemes which are located in one member state (i.e rUK) but which have members working in another member state (assuming Scotland becomes one). There is an EU requirement for such schemes to be fully funded at all times and employers will be faced with having to meet funding gaps. Transitional arrangements such as grace periods are currently proposed. Alternatively employers might look at splitting their schemes instead although this would be no mean task. Auto-enrolment will continue with some small adjustments such as setting up a Scottish Employment Savings Trust. Different interest rates, currency (potentially) and tax regimes are also likely to complicate pension provision for cross-border employers. 4. What employment rights and obligations would apply to your Scottish employees? Employment, industrial relations and health and safety are currently reserved to Westminster. On independence, these would pass to the Scottish government. The new Scottish parliament would amend the legislation currently applying to Scottish employees so whilst these are currently similar in Scotland to the rest of the UK, post independence there is likely to be a rapid divergence. The current Scottish government if re-elected would increase the national minimum wage 'at the very least' in line with inflation, encourage greater trade union participation, consult on employee representation on boards, consult on a target for female representation on boards and legislate as appropriate and, in general, strengthen employment protection (examples include restoring the 90 day consultation period and abolition of the recently introduced employee shareholder provisions). Key issues for review are zero-hour contracts and access to employment tribunals. The current Scottish government also proposes establishing a written constitution setting out the rights of its citizens which is also likely to impact on Scottish employment rights. Businesses and trade unions would have a role in shaping the constitution. The employment legislation derived from the EU would, assuming Scotland becomes a member state, require to be implemented by a Scottish government just as in rUK although there may be a divergence in terms of opt-outs. There is nothing however to prevent variations in how the directives are implemented or the extent to which Scotland might go further than strictly required. There is also the matter of whether rUK will remain a member of the EU. 5. How would your staff cross the border? For companies operating across England and Scotland, maintaining fluid movement of goods and labour is likely to be a key issue. The Common Travel Area currently allows people to travel freely between the UK, Ireland, the Isle of Man and the Channel Islands. The UK has opted out of the Schengen Agreement which abolishes all internal borders within the EU and imposes a common border policy on EU members. The UK and Ireland are the only countries in the EU which are not signatories to the Schengen Agreement. Membership of both the Common Travel Area and the Schengen Agreement is incompatible. Therefore unless Scotland negotiates to opt-out of the Schengen Agreement, certain border controls may become necessary between Scotland and rUK. This could restrict the movement of goods and people between England and Scotland causing logistical problems for businesses. The current Scottish government's position is that an independent Scotland will become part of the Common Travel Area and therefore labour and goods will be able to move between Scotland and rUK without being subjected to passport control or border checks. However others have expressed concern that an independent Scotland would be unable to negotiate EU membership unless they apply the Schengen rules as this is required of every new entrant to the EU. In this case, certain border controls may become necessary, unless a novel solution can be found or rUK also submits to the Schengen Agreement. Conclusion The referendum is due to take place on 18 September. Are you ready for such a fundamental change? ]]>{465EC895-660F-4230-92A4-445BEC5E5573}https://www.shoosmiths.co.uk/client-resources/legal-updates/review-survivors-benefits-occu-pension-7950.aspxReview of survivors&#39; benefits in occupational pension schemes Under the provisions of the Marriage (Same Sex Couples) Act 2013 the government was required to conduct a review of survivors' benefits in occupational pension schemes. The review compared provision of pension benefits between different categories covering: same sex survivor benefits (incorporating both those in civil partnerships and marriages) compared with opposite sex survivor benefits provided to widows; same sex survivor benefits compared to opposite sex survivor benefits provided to widowers; and opposite sex survivor benefits as provided to widows compared with opposite sex survivor benefits as provided to widowers. Published in June 2014, the review confirms that there will be a significant cost to the public sector of removing differences between the categories assessed. That cost is £2.9 million although around £1 billion of that relates to benefits that are due before 1 April 2015. It is expected that there would then be an ongoing cost of around £0.1 billion per annum into the 2020s reducing thereafter. The comparative cost to the private sector of removing the differences identified would be around £0.4 billion. If private sector schemes decide or are required to provide benefits to same sex couples on the same basis as opposite sex widows in line with the position under public sector schemes, then this would be at an estimated cost of £0.1 billion. The review itself runs into 31 pages and is supported by a research paper spanning over 60 pages and the government actuary's department's estimated costs report at 23 pages long. The ultimate conclusions are not surprising. The government has already made it clear it supports the idea that married same sex couples and civil partners should be treated equally to married opposite sex couples. However the cost of full equality for pension schemes given the need to fund and the impact of past but acceptable unequal practices acts as a natural barrier to taking a step towards total equality in this area. There is clearly concern that whilst the cost may not seem prohibitive to the private sector, the cost to the public sector is not insubstantial and there is not likely to be any appetite to proceed on the basis of equality in the private sector whilst inequality exists/remains in the public sector. Conversely steps to bring the private sector in line with the public sector in this area have a cost on the private sector, but not one that is clearly prohibitive. This would see the removal of the 5 December 2005 cut off date for providing fully equalised benefits and could be a possible first step. However there is no stated intention or indication in the review of what the government ultimately may decide. The position therefore remains as before, despite the review and the recent case of Innospec-v-Walker. Specifically, in relation to civil partners and same sex marriages, the 5 December 2005 cut off date, before which equalisation is not required except in relation to contracted-out benefits, remains a valid cut off point.Thu, 10 Jul 2014 00:00:00 +0100<![CDATA[Heather Chandler Kunjan Sembhi ]]><![CDATA[ Under the provisions of the Marriage (Same Sex Couples) Act 2013 the government was required to conduct a review of survivors' benefits in occupational pension schemes. The review compared provision of pension benefits between different categories covering: same sex survivor benefits (incorporating both those in civil partnerships and marriages) compared with opposite sex survivor benefits provided to widows; same sex survivor benefits compared to opposite sex survivor benefits provided to widowers; and opposite sex survivor benefits as provided to widows compared with opposite sex survivor benefits as provided to widowers. Published in June 2014, the review confirms that there will be a significant cost to the public sector of removing differences between the categories assessed. That cost is £2.9 million although around £1 billion of that relates to benefits that are due before 1 April 2015. It is expected that there would then be an ongoing cost of around £0.1 billion per annum into the 2020s reducing thereafter. The comparative cost to the private sector of removing the differences identified would be around £0.4 billion. If private sector schemes decide or are required to provide benefits to same sex couples on the same basis as opposite sex widows in line with the position under public sector schemes, then this would be at an estimated cost of £0.1 billion. The review itself runs into 31 pages and is supported by a research paper spanning over 60 pages and the government actuary's department's estimated costs report at 23 pages long. The ultimate conclusions are not surprising. The government has already made it clear it supports the idea that married same sex couples and civil partners should be treated equally to married opposite sex couples. However the cost of full equality for pension schemes given the need to fund and the impact of past but acceptable unequal practices acts as a natural barrier to taking a step towards total equality in this area. There is clearly concern that whilst the cost may not seem prohibitive to the private sector, the cost to the public sector is not insubstantial and there is not likely to be any appetite to proceed on the basis of equality in the private sector whilst inequality exists/remains in the public sector. Conversely steps to bring the private sector in line with the public sector in this area have a cost on the private sector, but not one that is clearly prohibitive. This would see the removal of the 5 December 2005 cut off date for providing fully equalised benefits and could be a possible first step. However there is no stated intention or indication in the review of what the government ultimately may decide. The position therefore remains as before, despite the review and the recent case of Innospec-v-Walker. Specifically, in relation to civil partners and same sex marriages, the 5 December 2005 cut off date, before which equalisation is not required except in relation to contracted-out benefits, remains a valid cut off point.]]>{BADC5FC4-3423-4D6D-8915-C120721E557D}https://www.shoosmiths.co.uk/client-resources/legal-updates/implications-llp-members-given-worker-protection-7759.aspxImplications for LLP Members given worker protection The Supreme Court ruling in the case of Clyde & Co LLP v Bates van Winkelhof means that members of limited liability partnerships ("LLPs") now have certain quasi-employment protections and may need to be automatically enrolled into a pension scheme. Background When LLPs were established in 2000 HMRC operated on the basis that members of LLPs were self-employed and they were taxed on that basis. HMRC challenged this position and, from 6 April 2014, LLP members who receive a salary are required to be treated as employees for tax and NI purposes. The position regarding LLP members who are not salaried remained unchanged. In the Clyde &amp; Co LLP case, Ms Bates van Winkelhof was removed from an LLP partnership allegedly as a result of her "blowing the whistle" having reported alleged criminal activity. The case considered whether Ms Bates van Winkelhof was a 'worker' for the purposes of the Employment Rights Act 1996 ("ERA") and therefore able to bring claims for detriment under the whistleblowing regime and discrimination. The Decision The Supreme Court overturned the earlier decision of the Court of Appeal and held that Ms Bates van Winkelhof was a worker under the ERA, since she undertook to personally perform services to the LLP in a relationship where the LLP could not be said to be her client or customer. Under the terms of her contract with the LLP she received a guaranteed level of salary alongside a share of the profits, and was restricted from working for anyone other than the LLP. Her role was therefore more akin to that of a worker than of someone who was self employed and carrying on their own business. Employment Implications As a result of this decision, LLP members who come within the definition of worker will be entitled to a range of statutory rights. For example, the right to paid annual leave, limits on working time, national minimum wage rules and protection from less favourable treatment if they work part time, alongside the whistleblowing protection Ms Bates van Winkelhof is seeking. Pensions Implications This decision was based on the definition of worker contained in the ERA and not that in the Pensions Act 2008 which is slightly different. It is therefore not clear whether a subsequent court would also consider LLP members to be workers for Pensions Act (and therefore automatic enrolment) purposes. In light of the uncertainty, LLPs are advised to consider now whether or not their members should be automatically enrolled into a qualifying workplace pension scheme. A number of issues need to be taken into account. Has the LLP passed its staging date? Indeed, does it even have a staging date? If the LLP is the main employer, it may have passed its staging date (the date when its automatic enrolment duties commenced). If so, consider whether the LLP members should be enrolled as soon as possible (with their membership being backdated to that staging date). If, however, the staging date has not yet occurred, there will be more time to consider the implications. A potential complication is where the LLP is not the main employer because the workforce is employed by a service company. The LLP may not therefore have a staging date. Staging dates have been set based on an employer's PAYE group. If the LLP is not PAYE registered as it has no employees, it will have no staging date. Are your LLP members workers? Consider the terms of the LLP structure? Are the members required to provide their services personally for the LLP? Are they restricted from providing their services to anyone else? Is it a relationship where the LLP can not be said to be the members' customer or client? Are the members integral to the LLP's business? 'Yes' answers to these questions indicate that the members are 'workers'. Are the LLP members eligible jobholders? Do they have qualifying earnings? To be an eligible or non-eligible jobholder an individual must have qualifying earnings above certain thresholds. Qualifying earnings include salary, wages, commission, bonuses, overtime and various parental statutory payments. Unless the drawings of LLP members are treated as salary, they would not fall within this definition. The LLP members would therefore have no qualifying earnings so could not be eligible or non-eligible jobholders. As a result, the LLP would not have a duty to automatically enrol them. Having said this, however, it is not currently clear whether HMRC and future courts would treat drawings as salary (or as disguised salary for HMRC purposes) when taking a purposive approach to interpreting the legislation. If LLP members are automatically enrolled, what about any HMRC protections? LLP members may be higher earners who have registered for HMRC protections. Automatic enrolment might result in a loss of that protection. Clear communication with them about any enrolment before it occurs is essential to allow them to decide, if appropriate, to opt out within the set period permitted by the legislation. Whilst doing so, however, you must be careful not to 'induce' them to opt out! So what next? Employment Review and update internal whistleblowing policies to ensure that they apply to LLP Members; Review current practices relating to working time, minimum wage, and part time workers to ensure LLP Members are treated in accordance with their rights as workers;Train managers in light of any changes. Pensions Cautious approach - review all LLP members and automatically enrol where appropriate, backdating contributions to your staging date, if applicable; Wait and see - there may be further case law in the foreseeable future;Review your LLP documentation (and make sure any claw back provisions do not give rise to an unauthorised deduction). Thu, 05 Jun 2014 00:00:00 +0100<![CDATA[Antonia Blackwell ]]><![CDATA[ The Supreme Court ruling in the case of Clyde & Co LLP v Bates van Winkelhof means that members of limited liability partnerships ("LLPs") now have certain quasi-employment protections and may need to be automatically enrolled into a pension scheme. Background When LLPs were established in 2000 HMRC operated on the basis that members of LLPs were self-employed and they were taxed on that basis. HMRC challenged this position and, from 6 April 2014, LLP members who receive a salary are required to be treated as employees for tax and NI purposes. The position regarding LLP members who are not salaried remained unchanged. In the Clyde &amp; Co LLP case, Ms Bates van Winkelhof was removed from an LLP partnership allegedly as a result of her "blowing the whistle" having reported alleged criminal activity. The case considered whether Ms Bates van Winkelhof was a 'worker' for the purposes of the Employment Rights Act 1996 ("ERA") and therefore able to bring claims for detriment under the whistleblowing regime and discrimination. The Decision The Supreme Court overturned the earlier decision of the Court of Appeal and held that Ms Bates van Winkelhof was a worker under the ERA, since she undertook to personally perform services to the LLP in a relationship where the LLP could not be said to be her client or customer. Under the terms of her contract with the LLP she received a guaranteed level of salary alongside a share of the profits, and was restricted from working for anyone other than the LLP. Her role was therefore more akin to that of a worker than of someone who was self employed and carrying on their own business. Employment Implications As a result of this decision, LLP members who come within the definition of worker will be entitled to a range of statutory rights. For example, the right to paid annual leave, limits on working time, national minimum wage rules and protection from less favourable treatment if they work part time, alongside the whistleblowing protection Ms Bates van Winkelhof is seeking. Pensions Implications This decision was based on the definition of worker contained in the ERA and not that in the Pensions Act 2008 which is slightly different. It is therefore not clear whether a subsequent court would also consider LLP members to be workers for Pensions Act (and therefore automatic enrolment) purposes. In light of the uncertainty, LLPs are advised to consider now whether or not their members should be automatically enrolled into a qualifying workplace pension scheme. A number of issues need to be taken into account. Has the LLP passed its staging date? Indeed, does it even have a staging date? If the LLP is the main employer, it may have passed its staging date (the date when its automatic enrolment duties commenced). If so, consider whether the LLP members should be enrolled as soon as possible (with their membership being backdated to that staging date). If, however, the staging date has not yet occurred, there will be more time to consider the implications. A potential complication is where the LLP is not the main employer because the workforce is employed by a service company. The LLP may not therefore have a staging date. Staging dates have been set based on an employer's PAYE group. If the LLP is not PAYE registered as it has no employees, it will have no staging date. Are your LLP members workers? Consider the terms of the LLP structure? Are the members required to provide their services personally for the LLP? Are they restricted from providing their services to anyone else? Is it a relationship where the LLP can not be said to be the members' customer or client? Are the members integral to the LLP's business? 'Yes' answers to these questions indicate that the members are 'workers'. Are the LLP members eligible jobholders? Do they have qualifying earnings? To be an eligible or non-eligible jobholder an individual must have qualifying earnings above certain thresholds. Qualifying earnings include salary, wages, commission, bonuses, overtime and various parental statutory payments. Unless the drawings of LLP members are treated as salary, they would not fall within this definition. The LLP members would therefore have no qualifying earnings so could not be eligible or non-eligible jobholders. As a result, the LLP would not have a duty to automatically enrol them. Having said this, however, it is not currently clear whether HMRC and future courts would treat drawings as salary (or as disguised salary for HMRC purposes) when taking a purposive approach to interpreting the legislation. If LLP members are automatically enrolled, what about any HMRC protections? LLP members may be higher earners who have registered for HMRC protections. Automatic enrolment might result in a loss of that protection. Clear communication with them about any enrolment before it occurs is essential to allow them to decide, if appropriate, to opt out within the set period permitted by the legislation. Whilst doing so, however, you must be careful not to 'induce' them to opt out! So what next? Employment Review and update internal whistleblowing policies to ensure that they apply to LLP Members; Review current practices relating to working time, minimum wage, and part time workers to ensure LLP Members are treated in accordance with their rights as workers;Train managers in light of any changes. Pensions Cautious approach - review all LLP members and automatically enrol where appropriate, backdating contributions to your staging date, if applicable; Wait and see - there may be further case law in the foreseeable future;Review your LLP documentation (and make sure any claw back provisions do not give rise to an unauthorised deduction). ]]>{F2C7EA02-60D8-4C51-A47F-972EDA6B281B}https://www.shoosmiths.co.uk/client-resources/legal-updates/pensions-act-2014-more-change-ahead-7701.aspxPensions Act 2014: more change ahead The Pensions Act 2014 received Royal Assent on 14 May 2014 introducing important changes to the regulations for pensions. One key change is the abolition of contracting-out. We will cover this in a separate update. Other key changes are summarised below. Rise in State pension age The phased increase in State pension age from 66 to 67 was originally proposed for 2034-2036. This has now been brought forward to 2026-2028. It will therefore affect those born after 5 April 1960. The Act also provides that the Government will regularly review (on a five yearly basis) the State pension age to ensure that future increases are in line with potential increases in life expectancy and also the principle that people should spend a given proportion of their lives receiving a State pension. It is thought that this could potentially bring forward the planned increases up to ages 68 and 69. The Government intends to give at least ten years' notice of any future increases. The Act sets out a general framework for reviewing State pension age including the requirement for reports from the Government Actuary's Department and independent panel. Details of methodology used will be announced in advance of the first review which is required to take place before 7 May 2017. New TPR Statutory Objective From July 2014, the Pensions Regulator is to have an additional Statutory objective, which is "to minimise any adverse impact on the sustainable growth of an employer" when it is applying its scheme funding powers. When it was first introduced, Steve Webb, Minister for Pensions, said that "the best guarantee of a pension scheme keeping its promises is to make sure that the sponsoring employer prospers". The intention of this new objective is to help ensure that trustees and employers have flexibility to deal with pension scheme deficits and benefit both scheme members and firms, for example by agreeing reduced contributions in order to allow an employer to reinvest money into the business in order to enhance its covenant. When interpreting the objective, the Government has indicated that 'sustainable growth' should be interpreted widely. Automatic transfer schemes The ability to take short service refunds from occupational pension schemes will be abolished from 2015. Currently, an employee who moves to a new employer and who has less than two year's pensionable service with his old employer may elect to receive a refund of his contributions. From 2015 employees' accumulated pension funds in a workplace scheme, whether a trust-based scheme or contract-based, will be transferred to their new scheme if they fall under a prescribed limit. It is expected that this limit will initially be set at £10,000 although this limit will be required to be reviewed at five yearly intervals. The Trustee or manager of an automatic transfer scheme will be obliged to find out if a member has transferable benefits under another scheme. If a member does, the trustees of that scheme will be required to issue a cash equivalent transfer notice so that a transfer to the new scheme can then take place. The Act allows for regulations to specify quality standards which must be satisfied by an automatic transfer scheme and this could cover governance and administration as well as prohibiting administration charges. Individuals will have the right to opt out of the transfer process; or alternatively, it will be possible to include a requirement for individual consent to be given before the transfer is made. DC Charges and monitoring There has been much discussion in the pensions industry for some time now about fairness in charging structures, both across different categories of pension scheme members and more generally. The Office of Fair Trading's report on this issue was critical of the charging levels imposed. The Act contains a power which will allow the Government to impose a cap with a view to protecting members from unduly high charges. In addition, a power to impose governance and administration requirements on schemes is also introduced by the Act. This links with the quality standards which are likely be a requirement for automatic transfer schemes. The detail of how these powers will be used is not yet know, however, the Government previously said (March 2014) that it would introduce a default fund charge cap of 0.75% of the value of a member's fund in an automatic enrolment qualifying scheme from April 2015. Further details, along with details of the Pensions Regulator's ability to issue compliance notices, and possibly penalty notices for such matters are expected to follow fairly shortly. Wed, 28 May 2014 00:00:00 +0100<![CDATA[Suzanne Burrell ]]><![CDATA[ The Pensions Act 2014 received Royal Assent on 14 May 2014 introducing important changes to the regulations for pensions. One key change is the abolition of contracting-out. We will cover this in a separate update. Other key changes are summarised below. Rise in State pension age The phased increase in State pension age from 66 to 67 was originally proposed for 2034-2036. This has now been brought forward to 2026-2028. It will therefore affect those born after 5 April 1960. The Act also provides that the Government will regularly review (on a five yearly basis) the State pension age to ensure that future increases are in line with potential increases in life expectancy and also the principle that people should spend a given proportion of their lives receiving a State pension. It is thought that this could potentially bring forward the planned increases up to ages 68 and 69. The Government intends to give at least ten years' notice of any future increases. The Act sets out a general framework for reviewing State pension age including the requirement for reports from the Government Actuary's Department and independent panel. Details of methodology used will be announced in advance of the first review which is required to take place before 7 May 2017. New TPR Statutory Objective From July 2014, the Pensions Regulator is to have an additional Statutory objective, which is "to minimise any adverse impact on the sustainable growth of an employer" when it is applying its scheme funding powers. When it was first introduced, Steve Webb, Minister for Pensions, said that "the best guarantee of a pension scheme keeping its promises is to make sure that the sponsoring employer prospers". The intention of this new objective is to help ensure that trustees and employers have flexibility to deal with pension scheme deficits and benefit both scheme members and firms, for example by agreeing reduced contributions in order to allow an employer to reinvest money into the business in order to enhance its covenant. When interpreting the objective, the Government has indicated that 'sustainable growth' should be interpreted widely. Automatic transfer schemes The ability to take short service refunds from occupational pension schemes will be abolished from 2015. Currently, an employee who moves to a new employer and who has less than two year's pensionable service with his old employer may elect to receive a refund of his contributions. From 2015 employees' accumulated pension funds in a workplace scheme, whether a trust-based scheme or contract-based, will be transferred to their new scheme if they fall under a prescribed limit. It is expected that this limit will initially be set at £10,000 although this limit will be required to be reviewed at five yearly intervals. The Trustee or manager of an automatic transfer scheme will be obliged to find out if a member has transferable benefits under another scheme. If a member does, the trustees of that scheme will be required to issue a cash equivalent transfer notice so that a transfer to the new scheme can then take place. The Act allows for regulations to specify quality standards which must be satisfied by an automatic transfer scheme and this could cover governance and administration as well as prohibiting administration charges. Individuals will have the right to opt out of the transfer process; or alternatively, it will be possible to include a requirement for individual consent to be given before the transfer is made. DC Charges and monitoring There has been much discussion in the pensions industry for some time now about fairness in charging structures, both across different categories of pension scheme members and more generally. The Office of Fair Trading's report on this issue was critical of the charging levels imposed. The Act contains a power which will allow the Government to impose a cap with a view to protecting members from unduly high charges. In addition, a power to impose governance and administration requirements on schemes is also introduced by the Act. This links with the quality standards which are likely be a requirement for automatic transfer schemes. The detail of how these powers will be used is not yet know, however, the Government previously said (March 2014) that it would introduce a default fund charge cap of 0.75% of the value of a member's fund in an automatic enrolment qualifying scheme from April 2015. Further details, along with details of the Pensions Regulator's ability to issue compliance notices, and possibly penalty notices for such matters are expected to follow fairly shortly. ]]>{FDF99A06-EE38-4CCA-BD9E-5DE5CCFCE4A2}https://www.shoosmiths.co.uk/client-resources/legal-updates/participation-in-public-service-pension-schemes-7615.aspxParticipation in Public Service Pension Schemes This article explores some key issues which employers participating in public service pension schemes should be aware of as they will have to deal with them. The schemes in question are undergoing fundamental reform with significant consequences. News about pensions used to be confined to the middle pages of traditional newspapers, nowadays, stories are often front page material regardless of newspaper size or quality. This is because so much has happened, particularly over the last twenty years, to change the way we think about pensions and the changes will have implications for us all. For employers participating in public service pension schemes, structural changes being made to those schemes now is affecting how the managers and administrators of those schemes approach funding, investment (where we are dealing with funded pension schemes as opposed to unfunded schemes) and governance. The consequences for employers are likely to be significant. Public service schemes An institution such as a university or college of higher or further education will typically participate in two or more public service pension schemes. Shoosmiths advises, on an ongoing basis, a higher education corporation which employs members of the Teachers' Pension Scheme (TPS), the Universities' Superannuation Scheme (USS) and the Local Government Pension Scheme (LGPS). Let's call this institution the HEC. Each of these three schemes provides benefits on a salary-related or defined benefit (DB) basis which means that, ultimately, the employer or the employers of that scheme or those schemes underwrite the cost to the scheme of providing the benefits to the members. The TPS is, to an extent, the exception amongst the three schemes referred to above. This is because, like many public service pension schemes, the TPS is an unfunded arrangement which, to cut a long and technical explanation short, means that the taxpayer is the ultimate underwriter of the benefits it pays to its members. The issues in practice In acting for the HEC (defined above), Shoosmiths has been involved in intense negotiations with the TPS managers, the trustees of the USS and the administering authority for the relevant section of the LGPS. Taking the last of these as an example, we have found the following: that the administering authority (Authority) took a more active approach to managing the deficit in its section of the LGPS because of this, the Authority required HEC to pay ongoing contributions on a significantly increased basis linked to 2 above, the Authority required HEC to pay additional deficit repair contributions (these were high - well in to six figure payments per month) Shoosmiths pension team successfully challenged the basis for the Authority's calculations, its reasons for requiring increased contributions and additional monthly payments and, in short, obtained a significant reduction in HEC's payments to the LGPS. Without giving too much away, the value of the saving made in one month covered this firm's fees more than twice over. One concern is that, like many employers in the private sector, employers in the public sector (including those private sector entities that employ former public sector workers and, because of this, participate in public service schemes) will be unduly hampered by pension concerns. For some years, balancing the funding needs of a DB pension scheme against the ongoing viability of an employer's business has been getting progressively more difficult. This highly complex issue is being transposed in to public service schemes so that, unless employers are able to take proper legal and actuarial advice, there is a risk of the so-called pensions tail wagging the academic dog (vis. HEC in our example). Vicious circle The concern referred to above in the case of HEC manifested itself in the material risk that, if HEC simply agreed to make the contributions at the levels proposed by the Authority, doing so would: effectively be preferring the interests of the LGPS potentially damage HEC's ability to function as a higher education corporation; which in turn would weaken its ability to support the pension schemes in question. Conclusions The above constitutes one of the clearest examples of a vicious circle that it is possible to create. Shoosmiths has worked alongside another business which provided actuarial advice, to demonstrate to the Authority (and, subsequently, the managers of the USS and the TPS) that it was in all parties' interests to adopt a more flexible, moderate recovery plan. In doing so, we were able to reverse the trend that (1) to (3) above could have established. Mon, 19 May 2014 00:00:00 +0100<![CDATA[Paul Carney ]]><![CDATA[ This article explores some key issues which employers participating in public service pension schemes should be aware of as they will have to deal with them. The schemes in question are undergoing fundamental reform with significant consequences. News about pensions used to be confined to the middle pages of traditional newspapers, nowadays, stories are often front page material regardless of newspaper size or quality. This is because so much has happened, particularly over the last twenty years, to change the way we think about pensions and the changes will have implications for us all. For employers participating in public service pension schemes, structural changes being made to those schemes now is affecting how the managers and administrators of those schemes approach funding, investment (where we are dealing with funded pension schemes as opposed to unfunded schemes) and governance. The consequences for employers are likely to be significant. Public service schemes An institution such as a university or college of higher or further education will typically participate in two or more public service pension schemes. Shoosmiths advises, on an ongoing basis, a higher education corporation which employs members of the Teachers' Pension Scheme (TPS), the Universities' Superannuation Scheme (USS) and the Local Government Pension Scheme (LGPS). Let's call this institution the HEC. Each of these three schemes provides benefits on a salary-related or defined benefit (DB) basis which means that, ultimately, the employer or the employers of that scheme or those schemes underwrite the cost to the scheme of providing the benefits to the members. The TPS is, to an extent, the exception amongst the three schemes referred to above. This is because, like many public service pension schemes, the TPS is an unfunded arrangement which, to cut a long and technical explanation short, means that the taxpayer is the ultimate underwriter of the benefits it pays to its members. The issues in practice In acting for the HEC (defined above), Shoosmiths has been involved in intense negotiations with the TPS managers, the trustees of the USS and the administering authority for the relevant section of the LGPS. Taking the last of these as an example, we have found the following: that the administering authority (Authority) took a more active approach to managing the deficit in its section of the LGPS because of this, the Authority required HEC to pay ongoing contributions on a significantly increased basis linked to 2 above, the Authority required HEC to pay additional deficit repair contributions (these were high - well in to six figure payments per month) Shoosmiths pension team successfully challenged the basis for the Authority's calculations, its reasons for requiring increased contributions and additional monthly payments and, in short, obtained a significant reduction in HEC's payments to the LGPS. Without giving too much away, the value of the saving made in one month covered this firm's fees more than twice over. One concern is that, like many employers in the private sector, employers in the public sector (including those private sector entities that employ former public sector workers and, because of this, participate in public service schemes) will be unduly hampered by pension concerns. For some years, balancing the funding needs of a DB pension scheme against the ongoing viability of an employer's business has been getting progressively more difficult. This highly complex issue is being transposed in to public service schemes so that, unless employers are able to take proper legal and actuarial advice, there is a risk of the so-called pensions tail wagging the academic dog (vis. HEC in our example). Vicious circle The concern referred to above in the case of HEC manifested itself in the material risk that, if HEC simply agreed to make the contributions at the levels proposed by the Authority, doing so would: effectively be preferring the interests of the LGPS potentially damage HEC's ability to function as a higher education corporation; which in turn would weaken its ability to support the pension schemes in question. Conclusions The above constitutes one of the clearest examples of a vicious circle that it is possible to create. Shoosmiths has worked alongside another business which provided actuarial advice, to demonstrate to the Authority (and, subsequently, the managers of the USS and the TPS) that it was in all parties' interests to adopt a more flexible, moderate recovery plan. In doing so, we were able to reverse the trend that (1) to (3) above could have established. ]]>{280E91F9-59E2-4A88-972D-7F6E909BBADD}https://www.shoosmiths.co.uk/client-resources/legal-updates/pension-law-6-april-disclosure-auto-enrolment-tupe-tax-7282.aspxPension law changes from 6 April: new disclosure regulations, auto-enrolment, TUPE transfers and tax limits The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 come into force on 6 April 2014. Other regulatory changes relating to TUPE, auto-enrolment and changes in the tax regime for pensions also come into force on that day. The disclosure regulations set out what information must be disclosed by occupational and personal pension schemes. This includes certain information that must be provided to a member on joining a scheme, information to be provided annually, and information that members can access on request. The requirements for occupational and personal pension schemes are currently contained in separate sets of regulations, which are revoked and replaced by the new regulations from 6 April. The existing regulations for stakeholder schemes are not revoked but are amended by the new regulations, to align methods for giving information across all types of schemes. Following the DWP consultation on proposals to 'consolidate, harmonise and simplify' the existing disclosure regime, the new regulations re-order provisions and simplify the structure and language of existing requirements. They also clarify the way in which schemes can give information electronically, opening up the possibility for schemes to provide more information by email or via a website (albeit with safeguards in place for members, who may choose to 'opt out' of receiving electronic communications). The new regulations were laid before Parliament last October and come into force on 6 April. We set out below a reminder of the key points: Additional requirements: Information on lifestyling: where a scheme provides money purchase benefits and contains provisions for lifestyling, members must be told what lifestyling is and given an explanation of its advantages and disadvantages, along with whether it has been (or will be) adopted by the scheme. The information must be given twice, firstly, as part of the basic scheme information provided to individuals on joining the scheme, and again between 5 and 15 years before the member's retirement date. Investment report: the annual investment report for defined benefit schemes will need to include a statement of any policy adopted by the trustees concerning rights (including voting rights) attaching to investments as well as the extent to which social, environmental or ethical considerations are taken into account in investment decisions. Timing for notification of 'material alterations': where a 'material alteration' is made to any of the basic scheme information provided to a member, this must now be communicated 'before or as soon as possible after' the date the change takes effect. Previously, the requirement was to provide information before the change took effect 'where practicable'. Permissive changes: Basic scheme information: some of the current elements of the basic scheme information to be provided are combined and simplified whilst some of the more complex information need now only be given on a member's request. Statutory Money Purchase Illustrations (SMPIs): the rules have been simplified so that SMPIs can now be tailored to personal circumstances, with trustees able to choose what assumptions to include. To tie in with auto-enrolment, there is no longer a requirement to provide an SMPI in the first year of an individual's scheme membership if no contributions have been credited for that member and the member has the right to opt out of the scheme. Benefit statements (defined benefit): these can now use an assumed retirement date which does not have to be the scheme's normal retirement age. Transfers out: the required information is simplified but must state that more detailed information is available on request. Auto-enrolment, TUPE transfer and pensions tax changes coming into force on 6 April 2014 Auto-enrolment: the scheme joining window is extended from one month to six weeks, with the timeframe for an employer registering with the pensions regulator after reaching its staging date extended from four to five months. The earnings thresholds for auto enrolment are increasing for the 2014/2015 tax year. The earnings trigger rises to £10,000, with the upper and lower ends of the qualifying earnings band increasing to £41,865 and £5,772 respectively. TUPE transfers: a TUPE employer will be able to satisfy the minimum requirements to provide future pension benefits for transferring employees either by paying contributions that match the employee's contributions up to a maximum of 6% of pay or (where the transferor employer paid contributions to a defined contribution scheme) by paying contributions that are not less than those paid by the transferor employer immediately prior to the transfer. This means that TUPE employers will be able to pay the minimum 1% currently required under auto-enrolment rules if that was what was being paid by the old employer. Pensions tax: the lifetime allowance reduces to £1.25 million (from £1.5 million) and the annual allowance reduces to £40,000 (from £50,000). Anyone wishing to register with HMRC for fixed protection 2014 must have submitted their claim on or before 5 April. Application forms to register for 'individual protection 2014' are expected to be available from August, with a deadline of 6 April 2017 for submitting a claim. Following the 2014 Budget, the limit for a trivial commutation lump sum has risen to £30,000 (from £18,000) and for a small lump sum to £10,000 (up from £2,000), both with effect from 27 March 2014. Depending on how scheme rules are drafted, it should be possible to pay trivial benefits up to the new limits without any rule amendments. Scheme rules should be checked carefully to see if this is the case. The Budget has also paved the way for greater flexibility over how members of defined contribution schemes take their benefits. From April 2015 there will no longer be a requirement to buy an annuity, and members may choose to take their benefits as a lump sum, purchase an annuity or draw down benefits as they wish. As a transitional measure, with effect from 27 March 2014, the minimum income requirement for flexible drawdown is reduced to £12,000 (from £20,000) and the capped drawdown limit increases to 150% (from 120%) of an equivalent annuity. Draft legislation on how the April 2015 changes will operate is awaited. Mon, 31 Mar 2014 00:00:00 +0100<![CDATA[Jenny Farrell Suzanne Burrell ]]><![CDATA[ The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 come into force on 6 April 2014. Other regulatory changes relating to TUPE, auto-enrolment and changes in the tax regime for pensions also come into force on that day. The disclosure regulations set out what information must be disclosed by occupational and personal pension schemes. This includes certain information that must be provided to a member on joining a scheme, information to be provided annually, and information that members can access on request. The requirements for occupational and personal pension schemes are currently contained in separate sets of regulations, which are revoked and replaced by the new regulations from 6 April. The existing regulations for stakeholder schemes are not revoked but are amended by the new regulations, to align methods for giving information across all types of schemes. Following the DWP consultation on proposals to 'consolidate, harmonise and simplify' the existing disclosure regime, the new regulations re-order provisions and simplify the structure and language of existing requirements. They also clarify the way in which schemes can give information electronically, opening up the possibility for schemes to provide more information by email or via a website (albeit with safeguards in place for members, who may choose to 'opt out' of receiving electronic communications). The new regulations were laid before Parliament last October and come into force on 6 April. We set out below a reminder of the key points: Additional requirements: Information on lifestyling: where a scheme provides money purchase benefits and contains provisions for lifestyling, members must be told what lifestyling is and given an explanation of its advantages and disadvantages, along with whether it has been (or will be) adopted by the scheme. The information must be given twice, firstly, as part of the basic scheme information provided to individuals on joining the scheme, and again between 5 and 15 years before the member's retirement date. Investment report: the annual investment report for defined benefit schemes will need to include a statement of any policy adopted by the trustees concerning rights (including voting rights) attaching to investments as well as the extent to which social, environmental or ethical considerations are taken into account in investment decisions. Timing for notification of 'material alterations': where a 'material alteration' is made to any of the basic scheme information provided to a member, this must now be communicated 'before or as soon as possible after' the date the change takes effect. Previously, the requirement was to provide information before the change took effect 'where practicable'. Permissive changes: Basic scheme information: some of the current elements of the basic scheme information to be provided are combined and simplified whilst some of the more complex information need now only be given on a member's request. Statutory Money Purchase Illustrations (SMPIs): the rules have been simplified so that SMPIs can now be tailored to personal circumstances, with trustees able to choose what assumptions to include. To tie in with auto-enrolment, there is no longer a requirement to provide an SMPI in the first year of an individual's scheme membership if no contributions have been credited for that member and the member has the right to opt out of the scheme. Benefit statements (defined benefit): these can now use an assumed retirement date which does not have to be the scheme's normal retirement age. Transfers out: the required information is simplified but must state that more detailed information is available on request. Auto-enrolment, TUPE transfer and pensions tax changes coming into force on 6 April 2014 Auto-enrolment: the scheme joining window is extended from one month to six weeks, with the timeframe for an employer registering with the pensions regulator after reaching its staging date extended from four to five months. The earnings thresholds for auto enrolment are increasing for the 2014/2015 tax year. The earnings trigger rises to £10,000, with the upper and lower ends of the qualifying earnings band increasing to £41,865 and £5,772 respectively. TUPE transfers: a TUPE employer will be able to satisfy the minimum requirements to provide future pension benefits for transferring employees either by paying contributions that match the employee's contributions up to a maximum of 6% of pay or (where the transferor employer paid contributions to a defined contribution scheme) by paying contributions that are not less than those paid by the transferor employer immediately prior to the transfer. This means that TUPE employers will be able to pay the minimum 1% currently required under auto-enrolment rules if that was what was being paid by the old employer. Pensions tax: the lifetime allowance reduces to £1.25 million (from £1.5 million) and the annual allowance reduces to £40,000 (from £50,000). Anyone wishing to register with HMRC for fixed protection 2014 must have submitted their claim on or before 5 April. Application forms to register for 'individual protection 2014' are expected to be available from August, with a deadline of 6 April 2017 for submitting a claim. Following the 2014 Budget, the limit for a trivial commutation lump sum has risen to £30,000 (from £18,000) and for a small lump sum to £10,000 (up from £2,000), both with effect from 27 March 2014. Depending on how scheme rules are drafted, it should be possible to pay trivial benefits up to the new limits without any rule amendments. Scheme rules should be checked carefully to see if this is the case. The Budget has also paved the way for greater flexibility over how members of defined contribution schemes take their benefits. From April 2015 there will no longer be a requirement to buy an annuity, and members may choose to take their benefits as a lump sum, purchase an annuity or draw down benefits as they wish. As a transitional measure, with effect from 27 March 2014, the minimum income requirement for flexible drawdown is reduced to £12,000 (from £20,000) and the capped drawdown limit increases to 150% (from 120%) of an equivalent annuity. Draft legislation on how the April 2015 changes will operate is awaited. ]]>